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JULY
The Reserve Bank of India (RBI) allows voluntary gold and silver pledges as collateral for agriculture and MSME Loans without losing collateral-free status
The RBI through a notification dated July 11, 2025, has issued a clarification easing collateral rules for Agriculture and MSME loans by allowing borrowers to voluntarily pledge gold or silver as collateral without the loan being disqualified from the collateral-free loan category. This means banks can accept gold or silver pledged voluntarily by borrowers for loans within the prescribed collateral-free limit, maintaining the loans' classification under priority sector collateral-free lending. The key points of the clarification include that the pledge must be at the borrower's discretion and cannot be mandated by banks, thereby easing formal credit access for small farmers and micro-entrepreneurs. This move promotes financial inclusion by balancing borrower flexibility and regulatory compliance, applying across scheduled commercial banks, regional rural banks, small finance banks, and cooperative banks.
The RBI issues new guidelines on Pre-Payment Charges for Loans
The RBI has introduced the Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025 on July 2, 2025, effective from January 1, 2026. These Directions establish a uniform regulatory framework for the levy of pre-payment charges by banks and regulated entities on loans, aimed at protecting borrowers, particularly individuals and Micro and Small Enterprises (MSEs), from unfair lending practices. The Directions prohibit the imposition of prepayment charges on floating-rate loans taken by individuals for non-business purposes, irrespective of the source of repayment or involvement of co-obligates. For business loans at floating interest rates, pre-payment charges are also prohibited for loans up to INR 50 lakhs granted by certain categories of banks and NBFCs, subject to specific tiered restrictions based on the lender type. Additionally, these Directions require that any pre-payment charges be transparently disclosed upfront in sanction letters, loan agreements, and Key Fact Statements, while banning any retrospective levies.
The RBI injects Rs. 5.6 Trillion Liquidity; CRR Cut Eases Funding Costs
The RBI has conducted large-scale liquidity operations under its Liquidity Adjustment Facility, injecting Rs. 5.6 trillion into the banking system and concurrently cutting the Cash Reserve Ratio by 100 basis points to ease funding pressures on banks and non-bank financial companies. These measures released roughly ₹1 trillion of additional lendable resources, drove call money and repo rates down by over 50 basis points within days, and reduced reliance on expensive market borrowings. Credit-rating agency Fitch projected a moderate dip in net interest margins for FY 2026, with a recovery in FY 2027 as deposit growth stabilises and credit offtake strengthens, while loan growth is forecast at 11 per cent for FY 2026. These interventions underscore the RBI's commitment to maintaining adequate system liquidity, supporting credit flows, and managing deposit pressures amid moderating retail deposit rates and intensified competition for funds.
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