Reserve Bank of India Permits Silver as Loan Collateral

The Reserve Bank of India (RBI) has announced a pivotal change in lending regulations, allowing silver to be used as collateral for loans. This new framework, titled the "Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025," will take effect on April 1, 2026.

New Lending Framework

This regulatory shift permits banks, non-banking financial companies (NBFCs), and cooperative banks to accept silver jewellery, ornaments, and coins as eligible collateral for securing loans. Previously, such provisions were largely limited to gold.

According to the guidelines, borrowers can pledge up to 10 kilograms of silver ornaments or 500 grams of silver coins. The valuation of the collateral will be based on the lower of the average closing price over the preceding 30 days or the closing price from the previous day, as provided by the India Bullion and Jewellers Association Ltd or a regulated commodity exchange.

Borrower Protections

The RBI has established stringent rules to protect borrowers. For instance, lenders must provide a valuation certificate and ensure that borrowers are present during the collateral assessment. Additionally, any delays in releasing the pledged silver after full repayment will incur a daily penalty of ₹5,000.

In the event of a loan default, lenders are permitted to auction the collateral but must notify the borrower beforehand. The reserve price for the auction must be at least 90% of the current value, and if an auction fails twice, the reserve price can be reduced to 85%.

Security and Storage

The guidelines also mandate robust security measures for the storage of pledged silver. Collateral must be stored securely within the lender's branch facilities, and only authorised personnel can handle it. Regular audits and surprise checks are required to ensure compliance with these standards.

Implications for Financial Inclusion

This policy is expected to broaden access to credit for those who may not have traditional means of securing loans. Financial analysts suggest that it could significantly improve financial inclusion, particularly for individuals who possess silver but lack access to adequate banking services.

The RBI's decision has garnered attention for its potential to reshape the lending landscape in India. As the implementation date approaches, stakeholders are keen to see how effectively these changes will be integrated into the financial system. The introduction of this facility is likely to stimulate economic activity by providing much-needed liquidity to borrowers.

In conclusion, the RBI's initiative to allow loans against silver collateral represents a significant evolution in India's lending practices. It aims to create a more inclusive financial environment while ensuring rigorous standards for valuation and security.