Let them pledge but don’t make it count: RBI’s clarification on voluntary pledge

Harshita Malik | finserv@vinodkothari.com

The Banking Puzzle

I was giving a collateral-free loan only, but the borrower didn’t agree – he voluntarily came and pledged family gold and silver jewellery! 

This is perhaps the way Banks will be reacting after the RBI Clarificatory circular on Voluntary Pledge of Gold (‘Voluntary Pledge Circular’). The Voluntary Pledge Circular dated July 11, 2025 which addresses all Scheduled Commercial Banks (including RRBs & SFBs), State Co-operative Banks, District Central Co-operative Banks states that a a voluntary pledge of gold or silver as collateral by a borrower for an agricultural or MSME loan shall not amount to a violation of the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025 (‘Gold Lending Directions’), provided that the sanctioned amount is within the collateral-free limit laid down in the earlier RBI guidelines. 

It may be noted that as per separate RBI circulars dated December 6, 2024 and July 24, 2017 farm lending upto Rs. 2 lacs and MSE lending upto Rs. 10 lacs shall be done without collateral.

This clarification by the regulator may enable lenders to circumvent the regulations by categorizing collateral as a voluntary pledge for loans within the collateral-free caps, whereas in reality, the borrower may have been directly or indirectly compelled to offer such collateral.

Further, the circular also makes reference to the Gold Lending Directions. A question may arise if the Gold Lending Directions will apply even in the case of voluntary pledge of gold. 

The Gold Lending Directions should apply in all such cases of voluntary pledges to avoid a situation of regulatory arbitrage, where lenders could potentially bypass regulatory guidelines merely by categorizing the pledge as voluntary.

Our resources on the topic- 

1. Bank-NBFC Partnerships for Priority Sector Lending: Impact of New Directions – Vinod Kothari Consultants
2. RBI revises Priority Sector Lending Norms
3. Meeting priority sector lending shortfalls: One more option
4. PSL guidelines reviewed for wider credit penetration
5. The new PSL Master Direction and its Impact on NBFCs