Should FM Sitharaman Reconsider RBI’s Proposed Gold Loan Restrictions?

Chennai, May 28 (NationPress) The Chief Minister of Tamil Nadu, M.K. Stalin, has reached out to Union Finance Minister Nirmala Sitharaman, requesting her to encourage the Reserve Bank of India (RBI) to rethink the proposed amendments to the RBI (Lending against Gold Collateral) Directions, 2025.

In his communication, he cautioned that the impending restrictions would have a significant negative impact on the rural credit ecosystem, particularly affecting small and marginal farmers in South India.

Stalin pointed out five critical implications, stating that these new regulations could hinder the timely provision of agricultural credit in rural areas, where gold-backed loans are often the sole financial option for smallholders, tenant farmers, and those involved in allied sectors such as dairy, poultry, and fisheries.

“The proposal is likely to lead to substantial disruptions in the rural credit delivery system in Tamil Nadu and many other regions of South India,” Stalin expressed in his letter to Sitharaman, emphasizing the urgent need for her intervention on this vital issue for the farming community.

He noted that the suggested ban on lending against gold, without strict documentation requirements, would prevent numerous rural households from accessing institutional credit.

“Many small and marginal farmers do not possess formal land titles or reliable income documentation. For these households, using household gold as collateral has been a viable and respectful means of accessing credit,” he stated.

Stalin warned that the new limitations would compel many borrowers to seek assistance from informal moneylenders. He also expressed concerns regarding the operational feasibility of the proposed regulations.

He mentioned that the requirement for a documented assessment of repayment capacity for small agricultural loans would be burdensome in rural settings, creating procedural obstacles, risking credit misclassification, and increasing compliance challenges for both banks and borrowers.

Gold-backed loans, the Chief Minister highlighted, serve as a quick and adaptable credit solution during critical periods such as sowing and harvesting.

“Any limitations on this funding channel could delay or diminish credit availability during essential times, adversely affecting farm productivity and the overall rural economy,” he cautioned.

He further stressed that a significant portion of priority sector lending (PSL) to agriculture is currently facilitated through gold loans.

Imposing restrictions, he argued, might jeopardize this crucial component of PSL targets.

In closing, Stalin urged Sitharaman to recommend to the RBI that gold continues to be accepted as collateral for agricultural and allied loans up to ₹2 lakh.

“A balanced regulatory approach—one that maintains credit discipline while ensuring financial access for vulnerable groups—will be both fair and just,” he concluded.