Stalin seeks Sitharaman’s intervention against RBI’s fresh gold loan norms

Tamil Nadu Chief Minister M.K. Stalin | Photo Credit: S.S. KUMAR

Tamil Nadu Chief Minister M.K. Stalin has written to Union Finance Minister Nirmala Sitharaman urging her to advise the Reserve Bank of India to reconsider the proposed restrictions in the Reserve Bank of India (Lending against Gold collateral) Directions, 2025.

Underlining five major implications that affected the people, the Chief Minister sought for Ms. Sitharaman’s early intervention in the matter, which is of critical importance to the farming community and the rural economy. “This proposal is likely to result in serious disruptions to the rural credit delivery system in Tamil Nadu and across many parts of South India, where gold-backed loans serve as a primary source of timely, short-term agricultural credit, especially for small and marginal farmers, tenant cultivators, and those engaged in allied sectors such as dairy, poultry, and fisheries,” he contended in his letter to the Union Minister.

Mr. Stalin said the new norms would disrupt access to formal credit. Small and marginal farmers often lacked formal land titles or verifiable income documentation. For such households, pledging household gold has been a viable and dignified route to access institutional credit. The proposed prohibition would directly curtail this essential channel, effectively excluding a large segment of genuine and needy borrowers from the formal financial system, he added.

It would lead to increased reliance on informal lending channels, the Chief Minister argued. “With formal avenues constrained, rural borrowers may be compelled to turn to informal and unregulated moneylenders, who typically charge exorbitant interest rates. This will expose them to exploitative practices, deepen indebtedness, and erode the progress made in formal financial inclusion,” he said.

Mr. Stalin pointed out that there were also operational challenges for lenders and borrowers. The new requirement for documented assessment of repayment capacity, particularly for small-ticket agricultural loans, was likely to be impractical in the rural context, he said, adding: “It may create procedural hurdles, lead to misclassification of credit, attract audit objections, and increase compliance burdens on both banks and borrowers.”

He also underlined the negative impact on seasonal and input credit flow. Gold-backed loans provided a swift and flexible mechanism to meet seasonal agricultural expenses, he said. “Any restrictions on this channel could delay or reduce credit flow during critical periods, such as sowing and harvesting, thereby affecting farm operations, productivity, and rural economic cycles.”

Flagging the adverse effects on priority sector lending (PSL), the Chief Minister pointed out that a significant share of PSL credit to the agriculture sector was currently extended through gold loans. “Curtailing this mechanism will impair the ability of banks to meet their PSL targets and can lead to a slowdown in overall rural credit expansion.”

Urging Ms. Sitharaman to advice the RBI to reconsider the restrictions, Mr. Stalin said: “It is imperative that gold continue to be accepted as collateral for agricultural and allied loans of up to ₹2 lakh, in recognition of its practical utility and the prevailing rural credit realities. I strongly suggest that a balanced regulatory approach, one that upholds credit discipline while preserving financial access for the vulnerable, will be more appropriate and equitable.”

Published - May 28, 2025 06:23 pm IST