RBI’s new gold loan norms force lenders to wind down repledged portfolios

The Reserve Bank of India’s (RBI) recent gold loan norms have plugged a loophole that allowed banks and non-bank financiers to lend against gold repledged by informal lenders, according to four bankers with knowledge of the matter.

The bankers said that these are loans given to pawn brokers against gold that these brokers have taken as collateral from their own customers in the first place. The RBI, the bankers said, has now said that repledging of gold is not allowed and, therefore, lenders that made such loans will not be able to renew them.

These bankers who spoke on the condition of anonymity said that the practice of lending against repledged gold was not confined to a single lender. However, they said that the size of this repledged gold and loans is difficult to ascertain, since most of it is to the unorganized sector.

In a revised June 2025 framework detailing norms for loans against gold jewellery, the RBI had barred regulated entities from lending against repledged gold.

“A lender shall not avail loans by re-pledging gold or silver pledged to it by its borrowers, or extend loans to other lenders, entities or individuals by accepting gold or silver collateral pledged to such lenders, entities, or individuals by their borrowers as collateral,” said the RBI’s gold loan norms.

Meanwhile, lenders have been falling over each other to lend against gold, driven by soaring gold prices, especially as personal loans and credit cards become scarce. Gold loans from banks stood at ₹3.2 trillion as of September-end, more than double of what it was a year ago.

The industry has been abuzz since private sector lender Federal Bank made a disclosure during the management’s call with analysts on 18 October. To be sure, the bank did not say it was lending against repledged gold, but bankers Mint spoke to pointed to this practice, prevalent among a few lenders.

As a part of its results for Q2 FY26, Federal Bank highlighted a particular loan segment within its gold loan portfolio–which were wholesale or business gold loans–that is expected to be hit once the new gold loan norms become effective from April 2026.

“Our gold loan, if you take away the Digi-biz business, that is the wholesale part of that gold business, which has to be run down because of the RBI new guideline,” managing director and chief executive officer K.V.S. Manian had said in the bank’s earnings call with analysts, adding that the focus will now be on growing the retail gold loan portfolio to build a “sustainable, good quality franchise”.

In Q2, Federal Bank’s gold loans grew around 9% year-on-year (y-o-y) to ₹32,323 crore, forming 13.2% of its overall loan book as on 30 September.

The bank did not provide any further details on what this portfolio is and why it will be hit. An email sent to the RBI remained unanswered till press time.

“We are managing the run-down of this portfolio well ahead of the regulatory deadline, thereby fully mitigating any future impact on our balance sheet post-FY26. This specific wholesale segment constituted a minor share of our total gold loan book,” Federal Bank told Mint in a response to the story,” a spokesperson for Federal Bank said in a response to emailed queries by Mint.

“Our strategic focus has now decisively shifted to the highly granular, higher-yielding retail gold loan segment. We project that the sustained growth in our retail gold portfolio will not only offset the run-down of the wholesale book but will also ensure continued, sustainable overall growth, with enhanced risk-adjusted returns.”

Repledging of gold for refinance

According to bankers and analysts Mint spoke to, the issue stems from certain banks lending to intermediaries or moneylenders who in turn were lending to customers, who pledged their gold with them. These intermediaries were lending to their customers at higher rates and then refinancing these loans with cheaper loans from banks against the same gold pledged by the customers.

Per data from financial services marketplace Bankbazaar.com, banks charge anywhere between 8.25% and 17% on gold loans. Industry experts said that the unorganized sector charges significantly higher.

This repledging of gold has now been prohibited by the regulator under the new norms, prompting lenders to wind down such loan segments before the new framework comes into effect from 1 April, 2026.

“What used to happen is that pawn brokers used to give informal loans at 34-36% and then go and get bank funding at lower rates. That’s the business, the loan aggregator business for gold loans, which now has been barred,” another banker told Mint.

“This is only applicable to loans given to aggregators in an upcountry (rural, semi-urban) markets. They are local moneylenders, so instead of customers coming to the bank, he (the moneylender) was stepping in and taking a refinance from the banks,” he added.

These moneylenders would often lend on their own, pool all the jewellery together and then take a loan from a gold loan non-bank financial company (NBFC) or bank, said a senior official at a large NBFC, adding that as per the new norms, the RBI is not comfortable with the practice, and they want only the original owner of the gold to go and take out a loan from a regulated entity or a bank.

The RBI’s discomfort stems from the fact that pawn brokers tend to charge “usurious rates” to their own customers. While the RBI cannot regulate such moneylenders directly, the idea is that at least they don’t get funding or refinancing from banks and NBFCs who can instead lend directly in this segment, the bankers said.

Two officials of public sector banks that Mint spoke to said that despite having the biggest gold loan portfolios, state-owned lenders are not involved in this loan segment.

Regulatory actions

“Earlier regulations did not say don’t do this, because there were no norms around the source of the gold, or a need to declare where the gold is from–whether you own the gold or have taken it from someone else and are repledging it. Now, this has been regulated,” the NBFC official cited earlier said.

However, the regulatory crackdown was not out of the blue. The RBI had first flagged this in September 2024, when it issued a circular warning regulated entities about “irregular practices observed in grant of loans against pledge of gold ornaments and jewellery”. The RBI had highlighted concerns such as shortcomings in the use of third parties for sourcing and appraisal of loans, valuation of gold without the presence of the customer, and inadequate due diligence and lack of end-use monitoring of gold loans, among others.

It had then also cited instances where loans were granted through partnership with fintech entities/business correspondents (BC), wherein valuation of the gold was being carried out in the absence of customer, credit appraisal and valuation was being done by the BC itself, and gold was stored in the custody of BCs.

This was followed by the tighter framework for lending against gold jewellery, issued in June 2025, which mandated that banks and NBFCs can only lend to “the rightful owner of the eligible collateral”, meaning the owner of the gold jewellery or ornaments.