New Delhi: The Reserve Bank of India (RBI) has permitted banks to extend need-based working capital loans to manufacturers that use gold as a raw material, widening the provision that was previously available only to jewellers.
Until now, banks were barred from lending for the purchase of gold or silver in any form, or from granting loans against primary gold or silver, except under a carve-out that allowed scheduled commercial banks (SCBs) to provide working capital loans to jewellers.
Through the Reserve Bank of India (Lending Against Gold and Silver Collateral) (1st Amendment) Directions, 2025, issued on Monday, this carve-out has now been extended to manufacturers and industries using gold in their processing activities.
“... Scheduled Commercial Bank or a Tier 3 or 4 UCB may extend need-based working capital finance to borrowers who use gold or silver as a raw material, or as an input in their manufacturing or industrial processing activity, for which such gold or silver can also be accepted as security,” the directions said.
RBI clarified that banks must ensure borrowers do not acquire or hold gold for investment or speculative purposes.
Alongside, the central bank also notified amendments to interest rate directions to offer greater flexibility to lenders and relief to borrowers. Under the Reserve Bank of India (Interest Rate on Advances) (Amendment Directions), 2025, banks may now reduce spread components earlier than the current three-year lock-in period, other than the credit risk premium.
“Banks may reduce the other spread components for the benefit of the borrower earlier than three years,” the amended directions said. Banks may also provide borrowers with the option to switch to fixed-rate loans at the time of reset, at their discretion.
In addition, RBI has revised the eligible limit for perpetual debt instruments (PDI) denominated in foreign currency or rupee bonds overseas. The move is expected to give banks more room to raise Tier 1 capital from international markets.
All directions issued will come into effect from October 1, 2025.
BI Bureau
