RBI Eases Loan Rules for Small Businesses and Gold-Based Industries

The Reserve Bank of India (RBI) has introduced significant changes in loan regulations for small businesses and industries that use gold as raw material. According to a circular issued on Monday, banks will now have more flexibility to adjust credit risk spreads for small business loans and will also be required to offer fixed-rate loan options to borrowers. Additionally, working capital loans will now be available not only to jewellers but also to any business using gold as raw material.

Relief for Small Businesses

Until now, banks could revise the credit-risk spread only once every three years, which limited the benefit of falling rates for borrowers. With the new rules, banks can reduce certain components of the spread earlier, allowing small businesses to benefit sooner through lower EMIs. Moreover, when the loan rate resets, borrowers will be offered a fixed-rate option, giving them stability against future interest rate fluctuations.

Boost for Gold-Based Industries

Previously, working capital loans against gold were restricted to jewellers. Now, industries such as electronics, precision components, or crafts that use gold as raw material can also access these loans. This move is expected to improve liquidity for such businesses and ensure smoother production processes.

Economic Impact

Experts believe these steps will strengthen the financial position of small businesses while improving the transmission of policy rate changes to the ground level. By extending gold-backed financing to more industries, the RBI aims to support supply chains and enhance industrial growth.

However, analysts caution that gold-backed loans carry risks of speculation and defaults. Banks will need to strictly enforce loan-to-value (LTV) ratios, accurate valuation norms, and KYC compliance to safeguard against potential risks.

Outcome

RBI’s move is a positive signal for both small businesses and gold-using industries. While small borrowers will gain from more flexible and stable lending options, gold-based businesses will get easier access to institutional working capital support. Together, these measures could play a crucial role in strengthening small enterprises and boosting India’s economic momentum.