RBI Introduces Lending Reforms To Ease MSME Credit, Aid Gold Loans, And Enhance Borrower Flexibility

In a major policy shift, the Reserve Bank of India (RBI) has revised its lending framework for small business and gold-backed loans, aiming to cut borrowing costs and improve credit access.

The fresh guidelines, unveiled on 29 September 2025, focus on quicker transmission of repo rate changes, particularly benefiting micro, small, and medium enterprises (MSMEs) and individual borrowers.

Banks can now revise credit risk spreads on small business loans more frequently, ending the earlier three-year lock-in period.

This move allows lenders to lower equated monthly instalments (EMIs) or reduce interest outgo sooner. Borrowers may also opt to switch from floating to fixed rates during resets, though this is no longer mandatory.

The RBI has expanded lending to industries that use gold as raw material, such as jewellery manufacturing, moving beyond collateral-backed loans.

This comes at a time when the gold loan market has surged 122 per cent year-on-year, reaching Rs 2.94 lakh crore in July 2025 amid rising gold prices and easier access for low-credit borrowers.

Earlier in June 2025, the central bank raised the loan-to-value (LTV) ratio for small gold loans up to Rs 2.5 lakh from 75 per cent to 85 per cent, easing liquidity for rural and low-income borrowers.

Final guidelines, effective 1 April 2026, will standardise valuation practices and curb over-leveraging, particularly for non-banking financial companies (NBFCs).

From January 2026, banks will also be barred from levying prepayment penalties on floating-rate retail loans, offering borrowers greater flexibility.

Experts say these reforms strike a balance between easing access and maintaining oversight, though volatility in gold prices poses risks.

Industry reactions remain positive, with analysts noting the measures could spur credit growth across MSMEs, rural borrowers, and infrastructure projects, reinforcing the RBI’s push for inclusive growth amid global economic uncertainties.

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