CHENNAI: The Reserve Bank of India's deferral on implementing draft regulations on gold loans has been a breath of relief for the stakeholders. Implementation of the new norms, proposed on April 9, would particularly impact small borrowers, which led to widespread flak. The directions included mandating repayment of loans within 12 months and requiring borrowers to present purchase receipts (bills) for the pledged gold.
Gold loans are generally a quick fix for emergency financial jams like hospital expenses and education fees for children; this was one of the main reasons the proposal was strongly opposed by vulnerable groups like farmers and low-income households.
KV Elankeeran of Thanjavur, a farmer, shared why they rely on gold loans, "Gold loans are the easiest way out for farmers. Natural disasters ruin crops, leaving no profit. We depend on these loans for children's education and needs." He stressed the impracticality of a fixed 12-month term due to unpredictable agricultural income, "Paying interest is easier. These rules would seriously affect farmers."
The respite extended to the gold loan sector as well. Santhakumar, secretary, Madras Jewellers and Diamond Traders Association, noted, "Postponing the new rules brought relief... The government heard the people's issues and considered sentiment values." He acknowledged initial fears among gold buyers regarding gold as an investment.
Meanwhile, consumer activists highlighted other flaws of the new norms. M Somasundaram pointed out that requiring purchase bills is inappropriate as many borrowers, particularly in rural areas, lack it. He also warned that stricter rules would likely cause pawnbrokers to hike interest rates and force borrowers towards unregulated private financiers. While suggesting simpler alternatives like a sub-₹80 BIS purity certificate, Somasundaram emphasised that middle and lower-class borrowers would be hardest hit.
A city goldsmith echoed the concern about pushing borrowers towards private lenders, "Customers would be panicked and unaware about purity certificates, going directly to private financiers." He asserted pawnbrokers would be the main beneficiaries if the rules were enforced.
The core objections centred on the rigid 12-month repayment clashing with the irregular income of borrowers like farmers, the impracticality of providing gold purchase receipts (especially for older jewellery or rural acquisitions without hallmarking), and fears that the rules would increase costs and push vulnerable borrowers into the unorganised lending sector.