RBI Eases Gold Loan Norms, Allows Early Spread Cuts on Floating-Rate Loans

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RBI Unveils Reforms to Speed Up Rate Transmission

Gold/Silver Loan Norms Eased; Large Exposure Rules Tweaked

3 Changes Effective Oct 1; 4 Drafts Open for Public Feedback

The Reserve Bank of India (RBI) announced a set of regulatory changes to improve policy rate
transmission, ease gold loan norms, and relax large credit exposure rules. Of seven changes,
three take effect from October 1, while four are issued as drafts for public comments.

Effective October 1

• Interest rates on advances (floating): Banks may reduce spread components even before the
  existing 3-year lock-in—potentially lowering EMIs faster when policy rates fall.
• Switch option at reset: Banks may offer borrowers a switch to fixed-rate loans at reset,
  but the option is no longer mandatory.
• Gold/Silver collateral lending: Banks and Tier-3/Tier-4 UCBs can extend working capital loans
  to any borrower using gold as raw material, not just jewellers.

Basel III & Large Exposure (Implemented)

RBI amended Basel III capital regulations to raise the eligible limit for Perpetual Debt Instruments (PDIs)
issued in foreign currency or rupee bonds overseas—enhancing banks’ flexibility to raise Tier-1 capital offshore.

Draft Proposals (Open for Comments)

• Gold Metal Loans (GML): Extend repayment period to 270 days from 180 days.
• GML access: Allow non-manufacturing jewellers to avail GML for outsourced production.
• LEF–ITE alignment: For foreign bank branches, exposures to head offices to be considered only under
  the Large Exposures Framework (LEF); extend credit risk mitigation benefits to a broader set of exposures.
• Credit bureau reporting: Increase submission frequency to weekly (from fortnightly), mandate
  faster error rectification, and include CKYC numbers in consumer reports.