RBI tweaks rules for small business loans, loans against gold

The Reserve Bank of India ( RBI) tweaked rules for small business loans, allowing the spread charged for the credit risk of a borrower to be adjusted more frequently.

It also allowed banks more flexibility in lending to businesses that use gold as a raw material.

The changes were announced late on Monday through a circular.

For loans to small businesses, banks are allowed to adjust the additional interest, or spread charged based on the credit profile of a borrower, once in three years.

"Banks may reduce the other spread components for the benefit of the borrower earlier than three years," the RBI said.

It added that banks can provide borrowers the option to switch over to a fixed-rate loan at the time of reset.

In a separate set of rules, the RBI gave more fluidity in providing loans to businesses that use gold as a raw material.

Banks are generally prohibited from lending for the purchase of gold and silver except as working capital to jewellers.

Lenders can now use this provision to offer working capital to any borrower that uses gold as a raw material, the RBI said.