RBI Introduces Key Financial Reforms: Personal Loans, Gold Collateral, and Capital Raising Changes

The Reserve Bank of India (RBI) is rolling out major financial reforms aimed at simplifying lending rules and boosting capital flow. These changes will take effect from October 1, 2025, and affect personal loans, gold-backed lending, and bank capital raising. Here’s what you need to know.

Floating-Rate Personal Loans: Faster Benefits

Under the new rules, banks can reduce the spread on floating-rate loans even before the three-year lock-in ends. This allows customers to get the benefit of rate cuts faster. Borrowers may see lower EMIs or reduced interest payments.

Additionally, banks can offer a fixed-rate option during interest rate resets. This choice is no longer mandatory but gives borrowers flexibility in planning their loan repayment.

Before this reform, banks had to stick to external benchmarks and could change spreads only once every three years. The update allows banks more freedom to adjust interest rates promptly, aligning them with current policy rates.

Gold and Silver Loans: Easier Access for Businesses

The RBI has eased rules for lending against gold and silver. Banks and urban cooperative banks (Tier-3 and Tier-4) can now offer working capital loans to businesses using gold or silver in production or industrial activities.

This means jewelry manufacturers and other industries using precious metals as raw materials can secure loans with gold or silver as collateral.

However, this facility does not cover individuals holding gold for investment or speculation. The focus is strictly on industrial or production use. Previously, lending against primary gold or financial instruments like ETFs and mutual fund units was restricted.

Capital Raising and Basel III Adjustments

Banks will also benefit from changes in Basel III rules. The RBI has increased the eligible limit for Perpetual Debt Instruments issued abroad. This allows banks to raise Tier-1 capital more easily from international markets, supporting stronger balance sheets.

Draft Rules for Public Feedback

The RBI has also released draft guidelines for consultation. One key area is the Gold Metal Loan (GML) scheme. Initially meant to support jewelry exporters with raw gold imports, the scheme now also applies to domestic jewelry makers.

The draft directions aim to harmonize rules and give banks more flexibility in designing GML policies. For instance, banks may now set repayment tenors for GML loans beyond exporters under certain ceilings.

Implications for Borrowers and Businesses

These reforms bring several benefits:

1. Faster interest relief: Floating-rate loan borrowers can adjust to policy rate cuts without waiting three years.
2. Flexible repayment options: Fixed-rate switching allows borrowers to plan repayments with certainty.
3. Easier industrial credit: Gold and silver-based loans are now accessible to businesses beyond jewelry exporters.
4. Stronger banks: Improved capital raising rules help banks maintain healthy Tier-1 capital.

For businesses using gold or silver in manufacturing, this change could be a game-changer. They can now secure working capital without liquidating assets or taking on high-cost credit.

Conclusion

The RBI’s new rules mark a significant step in financial reforms. They focus on easing borrowing, improving interest transmission, and strengthening banking capital. Personal borrowers and businesses alike stand to gain from faster loan access and flexible repayment options.

As these reforms take effect, borrowers should review their loan agreements and discuss options with banks. Staying informed will help take full advantage of the benefits.

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