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Anuradha Miglani

Thenewsdose.com

Chandigarh, July 14, UPDATED: 9:18 AM

In a significant move aimed at enhancing rural credit accessibility, the Reserve Bank of India (RBI) has allowed banks and financial institutions to accept gold as collateral for disbursing agricultural loans. This development is expected to provide a substantial boost to farmers in need of timely credit, particularly in regions where land records are fragmented or complex to secure as collateral.

Why This Matters: Bridging the Credit Gap in Rural India

Agriculture continues to be the primary livelihood for over 60% of India’s rural population, yet formal credit access remains limited, especially for small and marginal farmers. Many such farmers lack clear land titles or adequate documentation, which renders them ineligible for traditional agricultural loans. Gold, on the other hand, is widely held across rural households, especially in the form of family jewellery, and can now become a reliable means to access formal credit.

This RBI move seeks to bridge the gap between credit demand and institutional lending by leveraging household gold assets, which are estimated to be over 25,000 tonnes across India, a significant portion of which is in rural areas.

Key Features of the New Guidelines

• Gold as Agri Loan Collateral: Banks can now accept gold ornaments or bullion as collateral specifically for disbursing short-term crop loans or loans for allied agricultural activities.

• Priority Sector Lending: Loans issued against gold for agricultural purposes will continue to qualify under Priority Sector Lending (PSL) norms, ensuring banks meet their mandated rural credit targets.

• KYC and End-use Verification: RBI has asked banks to strictly follow Know Your Customer (KYC) norms and verify end-use of loans to ensure funds are deployed strictly for agricultural activities, not for consumption or speculative uses.

Potential Impact

• Empowering Small Farmers: This decision could enable millions of farmers who own land but lack formal documentation to access loans at lower interest rates.

• Curbing Dependence on Moneylenders: By making credit more accessible, it may help reduce farmers’ reliance on informal lenders, who often charge exorbitant interest.

• Seasonal Timeliness: Farmers can now secure gold-backed loans in time for sowing or harvesting seasons, thereby improving productivity and reducing financial stress.

• Boost for Gold Loan NBFCs and Banks: This decision is also expected to increase competition among lenders, including gold loan NBFCs such as Muthoot and Manappuram, and improve the rural penetration of public and private sector banks.

Expert Views

Experts have broadly welcomed the move, calling it a “farmer-friendly reform” that taps into a ready and idle rural asset class — gold. “This will unlock liquidity and align with the broader goal of Doubling Farmers’ Income,” said a senior banker. However, some also caution about the need for careful implementation and monitoring, mainly to prevent misuse or over-lending against fluctuating gold prices.

Farmers Views

Reduces Exploitation by Informal Lenders
“Rural India has always had gold, not always land. This will break the monopoly of sahukars (moneylenders) who exploit farmers during sowing time. But banks must not harass poor farmers in the name of paperwork.” –Rakesh Tikait (BKU, Uttar Pradesh):

Recognises Rural Wealth Beyond Land
“Gold is one asset rural women have control over. Using it to secure farm loans empowers families, especially in regions with disputed or no land titles.”- Yudhvir Singh (AIKSCC)

Way Forward

The RBI’s decision to allow gold pledge for agri-loans is a targeted rural stimulus, marrying tradition with modern finance. It acknowledges the socio-economic realities of India’s countryside — where gold often substitutes for formal financial instruments — and opens a new gateway for inclusive credit, just ahead of the upcoming crop cycle.