Supreme Court Rules: Banks Cannot Revalue Gold After Loan Repayment

In June 2025, the Reserve Bank of India (RBI) introduced major changes to the gold loan framework. This was done to curb mounting frauds and irregularities across banks and NBFCs. These revisions followed several borrower complaints, many of which highlighted issues such as arbitrary gold revaluation, delayed gold return, and a lack of transparency in auctions.

Notably, borrowers can now avail loans up to 85% of the value of their pledged gold, compared to the earlier 75% cap, making credit more accessible. However, while the rules have become stricter, certain banks have continued to disregard basic ethical standards. 

This article is important because the Bank of India recently received a stinging rebuke from the Supreme Court for auctioning a borrower’s gold even after the full repayment of the loan.

RBI’s Updated Gold Loan Rules 2025

The RBI's new gold loan guidelines aim to protect borrowers from arbitrary actions by lenders. One of the key areas addressed is the auction of pledged gold, which must now follow a transparent and borrower-friendly process. Here's a snapshot of the revised rules:

These rules aim to standardise bank behaviour and minimise disputes arising out of arbitrary sales and undervaluation of pledged gold.

Bank of India vs. Common Man

The Supreme Court ruling came in a case where a businessman from West Bengal took a gold loan of ₹7.7 lakhs on 22 July 2020 from the Motijhil Branch of Bank of India, pledging 254 grams of 22-carat gold. When he received a recall notice on 7 October 2022, demanding a total of ₹8,01,383.59, he promptly repaid the full amount by 31 March 2023.

Shockingly, despite full repayment, the bank revalued the pledged gold and deducted ₹1,500 towards valuation charges, which the borrower had to pay. Not only that, the bank ultimately auctioned off the gold ornaments. 

The borrower claimed he had no knowledge of this revaluation or the subsequent sale. The Supreme Court ruled in the borrower’s favour, stating that once a gold loan is repaid, banks cannot revalue or auction the pledged gold, reinforcing the principle of borrower protection.

Should You Borrow a Loan Against Gold?

Gold loans remain one of the most convenient forms of credit, especially for people in rural or semi-urban areas, and for those with lower or irregular income sources. But like any financial product, they come with pros and cons.

Did you know? RBI now mandates that banks must return your pledged gold within certain days. But is there a deadline?

Banks Must Return Gold Within 7 Days

Under the updated RBI rules, banks and NBFCs are legally bound to return pledged gold within 7 working days after the full repayment of the loan. If they fail to do so, they are liable to pay a penalty of ₹5,000 per day of delay. 

This measure aims to prevent institutions from holding onto customers' gold for unnecessary and unethical reasons. It also places direct accountability on banks to streamline their internal processes and ensure swift handover of collateral.

What If Banks Damage or Misplace Your Gold?

For example, you lend your work notebook to your friend to help him cover up the lag. What would happen if he lost your notebook? Well, RBI now has a regulation for that as well.

If the pledged gold or silver is lost, stolen, or damaged, the bank or NBFC is liable to compensate the borrower at current market rates. This enhances borrower protection and puts pressure on institutions to improve vault safety and tracking systems.

Conclusion

The Supreme Court’s verdict against Bank of India is more than just a victory for one borrower—it’s a wake-up call for the entire banking industry. As the RBI tightens regulations to ensure ethical conduct in gold loan practices, borrowers now have a stronger legal and regulatory shield. 

whether it’s timely return of gold, fair auctions, or compensation for mishandling, the ball is now in the banks' court—and the watchful eye of the law isn’t blinking.

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