What changed
Earlier, NBFCs were barred from lending against bullion, primary gold, and gold coins. This circular expands the prohibition to cover all advances for purchasing gold in any form, including jewellery, ETFs, and gold mutual funds.
What it means for you
NBFCs must immediately stop all gold purchase financing, which could reduce their gold-linked loan portfolios and impact customer segments reliant on such credit. Lenders need to review existing gold loan products to ensure no indirect financing for gold purchases occurs.
What you must do
- Cease all new advances for purchase of gold in any form, including jewellery, ETFs, and mutual funds.
- Review existing loan products to ensure no indirect financing for gold purchases is being extended.
- Update internal policies and credit appraisal systems to align with the expanded prohibition.
- Communicate the change to branches and loan officers to prevent inadvertent violations.
Who it affects
All Non-Banking Financial Companies (NBFCs), NBFC customers seeking gold purchase loans, Gold jewellery retailers and gold ETF distributors relying on NBFC financing
Does this circular apply to loans against gold already owned by the borrower?
No, this circular specifically prohibits advances for the purchase of gold. Loans against gold already owned (e.g., gold loan against jewellery) are not covered by this ban, but NBFCs must ensure the funds are not used for buying more gold.
Are gold ETFs and gold mutual funds included in the prohibition?
Yes, the circular explicitly includes units of gold Exchange Traded Funds (ETFs) and units of gold Mutual Funds in the list of prohibited forms of gold for which advances cannot be granted.
What was the previous guideline on this matter?
The earlier guideline dated March 21, 2012 (circular DNBS.CC.PD.No.265/03.10.001/2011-12) only barred advances against bullion, primary gold, and gold coins. This circular expands the ban to all forms of gold purchase financing.