30 September 2025 : In a significant policy update, the Reserve Bank of India (RBI) has allowed banks to extend working capital loans to manufacturers who use gold as a raw material. This move is expected to provide much-needed liquidity support to industries such as jewelry, ornaments, and other gold-based manufacturing sectors.
What Has Changed?
Earlier, banks were allowed to finance gold purchases only under limited conditions. With the new permission, manufacturers who rely heavily on gold for production will be able to secure working capital loans by pledging their raw gold holdings.
The RBI explained that this decision is part of efforts to enhance credit access for businesses and strengthen the financial ecosystem for industries that are directly dependent on gold.
Boost to Jewellery and Ornament Industry
The Indian jewelry industry, which contributes significantly to exports, has been facing rising input costs and fluctuating gold prices. Working capital loans will now allow manufacturers to:
- Manage cash flows more efficiently.
- Meet production and export deadlines.
- Hedge against volatility in gold prices.
Industry bodies such as the Gems and Jewellery Export Promotion Council (GJEPC) welcomed the RBI’s move, calling it a “game-changer” for exporters struggling with rising global competition.
RBI’s Statement
In its circular, the RBI stated:
“Authorised banks may now extend working capital loans to manufacturing units against their gold inventory, subject to standard prudential norms and risk management guidelines.”
The central bank also clarified that banks must ensure transparency, due diligence, and proper collateral valuation while granting such loans.
Why This Matters for the Economy
India is the second-largest consumer of gold in the world, and the jewelry sector alone employs millions of artisans, small traders, and exporters. By improving access to working capital:
- Manufacturers can boost production capacity.
- Export competitiveness may improve.
- Employment in the gold sector could see a positive impact.
Experts believe this move could help India enhance its position as a global jewelry hub.
Impact on Small and Medium Enterprises (SMEs)
While large jewelers already have access to credit lines, smaller players and medium-sized manufacturers often face difficulties in securing loans. By permitting gold-backed working capital financing, RBI has effectively opened a door for SMEs to expand operations without being constrained by cash shortages.
This could also reduce dependence on informal lending channels, where interest rates are typically much higher.
Industry Expert Opinions
Economist Dr. Radhika Gupta noted:
“This is a positive step. Many manufacturers previously had to block significant funds to hold gold inventory. By unlocking capital through loans, businesses can scale faster and more efficiently.”
Jewelry retailers also expressed optimism, saying that seasonal demands like weddings and festivals will now be easier to meet due to improved access to finance.
Risk Considerations
While the move has been welcomed, experts caution about possible risks, including:
- Potential misuse of gold inventories as collateral.
- Increased vulnerability of banks to gold price volatility.
- Need for strong monitoring mechanisms.
The RBI has reassured stakeholders that it will enforce strict guidelines to ensure financial discipline and prevent misuse.
Looking Ahead
Analysts suggest that this development could be the first step toward a broader framework for gold-linked financing in India. It may also encourage innovation in gold monetization schemes and help integrate India’s large unorganized gold sector into the formal financial system.
Summary
RBI now permits banks to grant working capital loans to manufacturers using gold as raw material, boosting liquidity for jewelry and gold-based industries, while enhancing exports and supporting SMEs.