Chennai: Tamil Nadu Chief Minister M K Stalin on Wednesday wrote to Union Finance Minister Nirmala Sitharaman strongly opposing the proposed Reserve Bank of India (RBI) directive that seeks to prohibit banks from accepting gold as collateral for agricultural loans up to ₹2 lakh. Calling the move “deeply concerning,” he warned that the draft guidelines could have severe consequences for rural credit systems, particularly in Tamil Nadu and across South India.
The RBI’s draft “Lending against Gold Collateral Directions, 2025” proposes restrictions that, according to Stalin, would “disrupt timely and accessible credit for small and marginal farmers, tenant cultivators, and others engaged in allied sectors such as dairy, poultry, and fisheries.” In his letter, he emphasised that gold-backed loans serve as a dignified and practical route for accessing institutional credit in rural areas where formal land titles or income documentation are often unavailable.
According to him, this would lead to excluding the farmers from formal credit sector.
Farmers without proper documentation would lose a critical and accessible credit avenue, leading to financial exclusion of vulnerable households. “With formal channels curtailed, rural borrowers may be forced to depend on unregulated moneylenders, exposing them to high interest rates and exploitative terms,” he feared.
Stalin added that requirements such as documented repayment capacity for small-ticket loans are impractical in rural contexts and could lead to procedural complications and audit risks. “The swift availability of gold-backed loans is essential during sowing and harvesting periods. Any delay or restriction could hamper agricultural productivity and rural economic cycles,” he cautioned.
Besides, he felt, since a large share of agricultural priority sector lending (PSL) currently comes through gold-backed loans, limiting this route could affect banks’ ability to meet PSL targets and slow rural credit growth.
Stalin urged the Finance Minister to intervene and advise the RBI to reconsider the proposed restrictions. “It is imperative that gold continue to be accepted as collateral for agricultural and allied loans up to ₹2 lakh, in recognition of its practical utility and the prevailing rural credit realities,” he said while calling for “balanced regulatory approach.”
