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On April 9, 2025, the RBI released a draft for comments - Reserve Bank of India (Lending Against Gold Collateral) Directions, 2025 (‘Draft Gold Loan Directions’)
Once finalized, these Directions will become a comprehensive master direction that all gold lenders - big or small - must follow.
Context behind the draft regulations
In FY 2024-25, India saw a gold lending boom - a ~68% rise in gold loans from April 2024 to December 2024.
A surge in any lending category naturally attracts RBI scrutiny.
And the RBI didn’t hesitate.
In a circular dated 30 September 2024 - the RBI flagged 11 irregularities it had observed in gold loan operations. The Draft Gold Loan Directions are a formal codification of RBI’s 30 September 2024 Circular.
What does this blog post cover?
The Draft Gold Loan Directions prescribe a slew of critical requirements - like changes in valuation norms, auction guidelines and risk limits. Most commentary will focus on these changes.
Unfortunately, we at Leegality are not experts on these changes.
But there’s one area of these Draft Directions that is core to day-to-day gold loan operations - and rarely talked about:
🔍 Your gold loan paperwork process
Fortunately, we at Leegality are experts about this.
Read on if you are interested in understanding:
- Key operational changes gold lenders must make in gold loan agreements, valuation certificates and other document processes
- Practical ways to comply smoothly, whether you use physical paperwork or digital documentation
Paperwork Requirement #1: Standardized documentation across all branches
Clause 39 of the Draft Gold Loan Rules state that:
39. Documentation shall be standardised across all branches of the lender
You must now use one common format for your gold loan documentation - across every branch and touchpoint:
- A common format for the gold loan agreement and KFS in all your branches
- A common format for the gold loan valuation certificate in all your branches
- A common Terms and Conditions document in all your branches
- A common notice format across all your branches
You get the idea. The above list is illustrative and not exhaustive.
How to comply with Paperwork Requirement #1:
- Have a central team own all documentation templates
- Do not give editing access to regional or zonal offices
- Evaluate the gold loan documentation used across branches - and ensure they are a common format
Paperwork Requirement #2: A more standardized gold loan agreement format
40. The loan agreement shall cover the description of the gold collateral taken as security, value of the collateral4, details of auction procedure and the circumstances leading to the auction of gold collateral, the notice period which shall be allowed to the borrower for repayment/ settlement of loan before the auction is conducted, timelines for release of pledged gold collateral upon full repayment/ settlement of loan, refund of surplus, if any, from the auction of gold collateral and other necessary details. All applicable charges payable by the borrower including those related to auction, etc., shall be clearly included in the loan agreement and Key Fact Statement, if applicable.
Clause 40 of the Draft Gold Loan Rules now specifies content that must be mandatorily included in your gold loan agreement:
- Description + value of gold collateral
- Auction procedure and triggers (in as much detail as possible)
- Notice period for borrower to repay before auction is held
- Timelines for gold release upon full repayment/settlement
- Timelines for release of pledged gold upon full repayment/settlement
- Timelines for refund of surplus, if any, from the auction of gold
- All applicable charges payable by the borrower (including auction charges)
- Borrower consent for surprise verification of gold collateral
And what about KFS?:
In the KFS, you must disclose all borrower charges - no exceptions.
Sounds vague?
Don’t worry - RBI has mandated a standard KFS format in Annexure A of the RBI KFS Rules. Just adopt that and you’re good.
How to comply with Paperwork Requirement #2:
- Verify that your gold loan agreement draft has the mandated details - and update the format if not
- Ensure you have a KFS in your gold loan process - with the format prescribed by RBI in Annexure A of the KFS Rules
- For Physical Paperwork - update SOPs and train branch staff to fill out new details
- For Digital Paperwork - map out new fields in your LOS/LMS or Document Execution Platform and ensure they are auto-filled
Paperwork Requirement #3: Standardized Gold Loan Valuation Certificate/e-Certificate
41. Lenders, while accepting gold collateral, shall prepare a certificate/ e-certificate in duplicate on their letterhead regarding the assay of the collateral and state therein the purity (in terms of carats); gross weight of the gold collateral; net weight of gold content and deductions, if any, relating to weight of stones, lac, alloy, strings, fastenings, etc.; damage/ breakage/ defects, if any, noticed in the collateral; image of the collateral; and the value of collateral arrived at the time of sanction. The certificate/ e-certificate shall be signed by both the lender and borrower. One copy of the certificate/ e-certificate shall be kept as part of the loan documents and the other copy be given to the borrower under their acknowledgement.
As per Clause 41 of the Draft Gold Loan Rules, gold lenders must now mandatorily prepare a certificate/e-certificate on their letterhead which states:
- Purity (in terms of carats)
- Gross weight of the gold
- Net weight of the gold - with deductions for non-gold components of the ornament
- Damage/breakage/defects in the collateral
- Image of the collateral
- Value of collateral at time of sanction
How to comply with Paperwork Requirement #3:
- Mandatorily introduce valuation certificate in all your disbursals - if not done already
- Ensure the valuation certificate has all the required details - in one common format
- For digital paperwork: Update your LOS/LMS to generate a valuation certificate with updated details - can be auto-filled via your document execution platform
Paperwork Requirement #4: Gold loan valuation certificate/e-certificate must be signed by both the lender and the borrower
41. ......The certificate/ e-certificate shall be signed by both the lender and borrower.....
This new requirement is designed to address a problem that the RBI had flagged in the September 2024 circular - where gold was being valued in the absence of the borrower - especially in fintech partner-driven loans
Valuation without a borrower was an indicator of false/fraudulent valuations of gold in order to facilitate money laundering.
Since the clause specifies "signed" - an IT Act specified eSign must be used - that is:
- Aadhaar eSign - via OTP, Biometric, Face or IRIS
- DSC Token
- PAN eSign
- DocSigner
Other modes of eAuthentication like an OTP based clickwrap or virtual signature cannot be used. Why? Read our 3-minute explainer on eSign validity to understand why.
Paperwork Requirement #5: Valuation certificate/e-certificate must be part of gold loan kit and also given standalone to the borrower
41. ....One copy of the certificate/ e-certificate shall be kept as part of the loan documents and the other copy be given to the borrower under their acknowledgement.....
Clause 41 also mandates what happens to the valuation certificate after it has been signed:
- One copy must be included as part of the gold loan agreement kit
- One copy must be given standalone to the borrower
This ensures that the certificate cannot be tampered with later - intentionally or accidentally.
How to comply with Paperwork Requirement #4 and #5:
If you are using a physical certificate:
- Instruct branch staff to print 2 copies and get signatures from both parties
- Instruct branch staff to give one copy to borrower immediately and collect an acknowledgement
- Instruct staff to attach the other copy to the loan kit before execution
If you are using e-Certificate:
- Collect geo-tag + face capture (with geofencing if possible) during eSign to confirm borrower and lender are in same location
- Ensure that an IT Act eSignature is used to sign the valuation certificate
- Configure an auto-send of the signed eCertificate to borrower via Whatsapp, SMS or email
- Ensure that your LOS/LMS or Document Execution Platform auto-attaches eCertificate to the gold loan agreement kit
Paperwork Requirement #6: All communications with the borrower must be in a language that the borrower can understand
Clause 42 of the Draft Gold Loan Rules states that:
42. All communication with the borrower, especially, the terms and conditions of the loan, or other important communication which affects the interest of the borrower or the lender, including a breach of the prescribed LTV ratio, shall be in the language of the region or in a language as chosen by the borrower. For illiterate borrowers, lenders shall explain important terms and conditions in the presence of a witness.
How to comply with Paperwork Requirement #6:
For physical paperwork journeys:
- Translate all forms and documents - loan agreements, KFS, notices, certificates etc. into the official language(s) of the states you operate in
- Update SOP and ensure that the relevant language copies are available to branches
- Instruct branch staff to provide borrower with local language copy during disbursal - if needed
For digital paperwork journeys:
- Do the same thing as above
- Let the borrower choose their preferred language upfront - like at an ATM. Automatically reflect that choice in all subsequent touchpoints
For illiterate borrowers:
Ensure a witness signature is collected on the agreement kit.
Paperwork Requirement #7: Mandatory documentary evidence for income generating gold loans
The Draft Gold Loan Directions now divide gold loans into two buckets:
- Consumption loans - where funds are for personal consumption needs (e.g emergencies, medical expenses, consumer durable purchases etc.)
- Income generating loans - where funds are for activities that “generate income” (e.g for business, agri or commercial use)
Clause 12 of the Draft Gold Loan Direction state:
12. Lenders shall put in place proper systems and controls to ensure that end-use of these loans are periodically monitored and relevant evidence are put on record. Documentary evidence of end-use shall be mandatory for all income generating loans, and for consumption loans above a threshold amount decided by the lender’s policy.
This plugs a serious gap flagged in the September 30 2024 Circular - where RBI had noted that non-agri gold loans were being disbursed without proper verification and agri gold loans without proper documentary evidence.
How to comply with Paperwork Requirement #7:
- Each branch will now need to mandatorily have a process for collecting supporting documents at the time of gold loan disbursal for income generating loans.
- Structure your LOS/LMS so that gold loan disbursal cannot proceed until valid evidence is uploaded and verified
- Train branch/field staff to collect, check, and log acceptable proof formats (invoices, bills, etc.)
TL;DR - Compliance Checklist for Paperwork Processes under Draft Gold Loan Rules
Next steps
These are currently "draft" rules for which RBI has solicited comments.
So the immediate next steps for you - as a gold lender - would be to:
- Go through the Draft Gold Loan Rules
- Send your comments to the RBI by May 12
If you are interested in building a compliant digital paperwork flow in anticipation of the final rules - you can consider reaching out to us at Leegality.
Leegality is a document infrastructure platform currently being used by 9+ gold lenders to digitally execute gold loan agreements, KFS and other documentation in a fast easy and compliant way.
Beyond the clear compliance benefits, there are also massive operational benefits to a digital paperwork process.
Don't take our word for it.
Download our free case study on our work with Indel Money to see for yourself.
