RBI’s Gold Loan Game-Changer: How New Working Capital Rules Will Boost Manufacturing?

Mumbai: Traditionally, banks were barred from lending for buying gold or silver or offering loans secured by primary gold or silver. But under new guidelines, a carve‑out allows scheduled commercial banks (SCBs) to extend working capital loans to jewellers and businesses that use gold as raw material. This change means that manufacturers who rely on gold inputs—beyond jewelry makers—can now access credit backed by gold.

More Flexibility in Interest Spreads and Rate Resets

Previously, banks could adjust the spread over benchmark rates (which account for borrower credit risk) only once every three years. Under the new regime, banks can revise other components of the spread earlier, giving firms relief sooner if conditions improve. Borrowers will also have the option to switch to a fixed‑rate loan at the time of reset, giving them predictability in costs.

Credit Reporting and Capital Rule Changes

RBI now requires Credit Institutions (CIs) to submit credit data to Credit Information Companies (CICs) more frequently—currently fortnightly, proposed shifting to weekly submissions. This aims to improve credit data quality and timeliness. To support global capital raising, banks are also now permitted to use foreign‑currency and overseas‑rupee bonds as Additional Tier 1 capital, easing access to offshore funding.

Consultative Measures and Wider Lending Reach

RBI has issued seven directions to lenders—three are mandatory, four are open for public consultation until October 20. Another reform expands lending capacity via urban cooperative banks, allowing broader credit dissemination into smaller towns and sectors.

Why It’s a Game-Changer for Manufacturing?

Manufacturers that depend on gold (for plating, components, specialty parts) will now find credit more accessible. The ability to adjust spreads sooner can relieve financial stress in volatile markets. Being able to switch to fixed rates enhances cost predictability, aiding budgeting. Together, these reforms could unleash growth in sectors previously excluded from gold‑based lending, making capital flows more inclusive and boosting India’s broader industrial capacity.