No gold loan against gold mutual funds and ETFs, only ornaments, jewellery, and coins allowed: RBI

You cannot get a gold loan against gold bullion or bars, digital gold, gold mutual funds, or gold ETFs, according to the latest lending directions set by the Reserve Bank of India (RBI). Gold loans will be allowed only against ornaments, jewellery, and coins.

Primary gold here means gold in any form other than in the form of jewellery, ornaments, and coins.

"However, the regulated entities (REs) have been permitted to lend against the collateral security of gold jewellery, ornaments and coins for meeting the short-term financing needs of borrowers," it added.

RBI defines jewellery as items designed to be worn as personal adornments, whereas ornament means "items meant for use as adornment of any object, decorative items, or utensils, excluding those items that fall under the definition of jewellery."

The RBI said that a lender shall not grant any advance or loan against primary gold or primary assets backed by primary gold. This means you cannot get a gold loan against digital gold, units of gold mutual funds, and gold exchange-traded funds (ETFs) as they are backed by primary gold.

"A lender shall not grant any advance or loan against primary gold or silver or financial assets backed by primary gold or silver, e.g., units of Exchange-traded funds (ETFs) or units of Mutual Funds," the RBI said.

Collateral limit

Further, there is a limit on how much gold or silver a borrower can pledge for a loan.

Loan tenure

The RBI said that the tenor of a "consumption loan" against gold and silver in the nature of "bullet repayment loans" shall be capped at 12 months, which may be renewed.

The consumption loan means any loan that does not fit into the definition of an income-generating loan. Whereas, bullet repayment means "loans where both principal and interest are due for payment at the maturity of the loan."

No lending if ownership is doubtful

The RBI's directions say that a lender shall not extend a loan where ownership of the collateral is doubtful. Borrowers need to provide a suitable document or declaration to establish they are the rightful owner of the collateral being provided to the lender.

"A suitable document or declaration shall be obtained from the borrower in all cases to the effect that the borrower is the rightful owner of the eligible collateral," the RBI said.