India

Gold & Silver allowed as Voluntary Collateral for Agri & MSME Loans under Rs 2 Lakh: RBI

Posted on by Minakshi

RBI Greenlights Gold and Silver as Collateral for Agri & MSME Loans Up to ₹2 Lakh

In a significant move to boost credit accessibility for farmers and small businesses, the Reserve Bank of India (RBI) has authorized banks to accept gold and silver as voluntary collateral for agricultural and Micro, Small & Medium Enterprises (MSME) loans. This initiative specifically targets loans up to ₹2 lakh.

Easing Credit Access in Rural India

The RBI’s directive aims to provide greater financial inclusion, especially in rural areas where access to formal credit can be challenging. By allowing voluntary pledges of gold and silver, a common form of wealth in Indian households, the RBI hopes to bridge the credit gap.

What Kind of Gold and Silver Can Be Pledged?

The circular clarifies that household gold and silver, including items such as:

  • Jewellery
  • Ornaments
  • Coins

can be accepted as collateral, provided the borrower voluntarily offers them as security for the loan.

Impact on Agri and MSME Sectors

This decision is expected to have a positive impact on the agricultural and MSME sectors, providing them with easier access to much-needed credit for:

  • Working capital
  • Expansion
  • Meeting operational expenses

Previously, many of these borrowers struggled to secure loans due to a lack of acceptable collateral. This move is anticipated to empower them and boost economic activity at the grassroots level.

Summary:

  • RBI now allows gold and silver as collateral for Agri & MSME loans up to ₹2 lakh.
  • This initiative aims to improve credit access, particularly in rural India.
  • Household gold and silver items can be voluntarily pledged as collateral.
Key Takeaways:

  • The move significantly lowers barriers to credit for small farmers and businesses.
  • Voluntary pledge ensures borrower consent and avoids forced asset sales.
  • This is expected to stimulate growth in the agricultural and MSME sectors.
  • Banks are now required to establish clear guidelines for accepting and valuing gold and silver collateral.