Chennai, May 28 Tamil Nadu Chief Minister M.K. Stalin has written to Union Finance Minister Nirmala Sitharaman, urging her to advise the Reserve Bank of India (RBI) to reconsider the proposed changes in the RBI (Lending against Gold Collateral) Directions, 2025.
He warned that the restrictions would severely impact the rural credit ecosystem, particularly in South India, and disproportionately affect small and marginal farmers.
Highlighting five key implications, Stalin said the proposed norms could disrupt the timely flow of agricultural credit in rural areas where gold-backed loans are often the only viable option for smallholders, tenant farmers, and those engaged in allied sectors such as dairy, poultry, and fisheries.
“This proposal is likely to result in serious disruptions to the rural credit delivery system in Tamil Nadu and across many parts of South India,” Stalin wrote in his letter to Sitharaman, calling for her urgent intervention on this matter of critical importance to the farming community.
He pointed out that the proposed prohibition on lending against gold, without stringent documentation requirements, would deny access to institutional credit for many rural households.
“Small and marginal farmers often lack formal land titles or verifiable income documentation. For such households, pledging household gold has been a viable and dignified route to access credit,” he said.
The new restrictions, he warned, would force many borrowers to turn to informal moneylenders. Stalin also raised concerns about the operational impracticalities of the proposed norms.
He said that requiring a documented assessment of repayment capacity for small-ticket agricultural loans would be cumbersome in rural contexts, creating procedural hurdles, risking credit misclassification, and increasing compliance burdens for both banks and borrowers.
Gold-backed loans, the Chief Minister noted, are a swift and flexible credit mechanism during crucial times such as sowing and harvesting.
“Any restrictions on this channel could delay or reduce credit availability during critical periods, thereby affecting farm productivity and the overall rural economy,” he warned.
He further emphasised that a significant portion of priority sector lending (PSL) to agriculture is currently extended through gold loans.
Imposing restrictions, he said, could undermine this key component of PSL targets.
Concluding his letter, Stalin urged Sitharaman to advise the RBI to allow the continued acceptance of gold as collateral for agricultural and allied loans up to Rs 2 lakh.
“A balanced regulatory approach—one that upholds credit discipline while preserving financial access for vulnerable groups—will be more appropriate and equitable,” he stated.
--IANS
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