What changed
Previously, gold loans at RRBs required regular interest payments at monthly rests. Now, RBI has introduced an optional bullet repayment structure for gold loans up to ₹1 lakh, where interest is charged monthly but becomes due only at the end of the 12-month loan period. The loan amount cannot exceed ₹1 lakh at any time, and the tenure is capped at 12 months.
What it means for you
RRBs can now offer a more flexible gold loan product that may attract borrowers who prefer lump-sum repayment. However, banks must set minimum margins, monitor price fluctuations, and classify accounts as NPA if margins are breached even before the due date. This adds a layer of risk management for lenders while expanding product options.
What you must do
- Update your gold loan policy with board approval to include bullet repayment option for loans up to ₹1 lakh.
- Set and enforce minimum margin requirements considering gold price volatility and accrued interest.
- Train staff on NPA classification triggers—accounts become sub-standard if margin is not maintained, even before maturity.
- Ensure systems track monthly interest accrual and flag accounts for margin shortfalls proactively.
Who it affects
Regional Rural Banks, Gold loan borrowers at RRBs, RRB board members and credit policy teams
Can RRBs offer bullet repayment for gold loans above ₹1 lakh?
No, the circular explicitly limits bullet repayment gold loans to a maximum of ₹1 lakh at any point of time.
What happens if the gold price drops and margin is not maintained before the loan matures?
The account will be classified as a non-performing asset (sub-standard category) even before the due date if the prescribed margin is not maintained.
Are crop loans against gold collateral covered by this circular?
No, crop loans secured by gold or gold ornaments continue to follow existing income recognition, asset classification, and provisioning norms, not the bullet repayment option.