Gold Loan Update: Taking a cautious stance after concerns flagged by the Reserve Bank of India (RBI), banks and non-banking financial companies (NBFCs) have started tightening their gold loan norms. With gold prices hitting record highs and volatility increasing, lenders are reducing the loan-to-value (LTV) ratio, which means borrowers will now get less loan amount against the same quantity of gold.
Gold loans, which have emerged as one of the fastest-growing segments in retail credit, are now facing stricter scrutiny as regulators worry about rising risks linked to aggressive lending.
According to industry reports, lenders that were earlier offering 70–72 percent LTV on the value of pledged gold have now cut it down to 60–65 percent. This effectively reduces the maximum loan amount that borrowers can avail, even if gold prices are at all-time highs.
For borrowers, the impact is straightforward: higher gold prices no longer automatically translate into higher loan eligibility. For lenders, the move is about strengthening risk management amid uncertain global and domestic conditions.
The RBI’s concern primarily stems from the sharp and frequent fluctuations in gold prices, driven by global uncertainty, currency volatility, and geopolitical risks. Since gold prices are sensitive to movements in the rupee and global bullion markets, sudden corrections can expose lenders to losses.
The regulator has advised banks and NBFCs to remain cautious, slow down aggressive disbursals, and ensure that gold-backed lending does not compromise asset quality. As a result, financial institutions are reassessing their exposure to this rapidly expanding segment.
One of the biggest risks for lenders is a potential 10–15 percent correction in gold prices. In such a scenario, the outstanding loan amount could exceed the value of the pledged gold, weakening the collateral cover.
If this happens, borrowers may choose to default, leaving lenders with assets that are insufficient to recover dues. This could quickly increase credit risk and non-performing assets (NPAs), especially if the correction is sharp and widespread.
Gold prices have surged dramatically in recent months. On the MCX spot market, gold is currently trading around ₹1.31 lakh per 10 grams. Prices have risen nearly 20 percent in the last three months and about 35 percent over the past six months.
This rally has significantly boosted demand for gold loans, as households and small businesses look to monetise their jewellery during periods of high valuation.
Gold loans are currently among the fastest-growing retail credit categories in India. Since March 2025, year-on-year growth in gold loans has touched close to 100 percent, driven by both households and jewellery traders.
Data shows that the value of gold pledged with banks has been hitting record highs for the past 18 months. In October 2025, outstanding gold-backed loans reached around ₹3.37 lakh crore, compared to just ₹1.01 lakh crore in April 2024. This rapid expansion has intensified regulatory concerns.
Beyond prices, lenders are also worried about who is borrowing and why. Industry sources indicate that borrowers aged 31–40 years account for nearly 40–45 percent of gold loan customers. Meanwhile, participation from the 21–30 age group has doubled since FY21.
The average gold loan ticket size currently ranges between ₹80,000 and ₹1.5 lakh. A key concern is that a large portion of these loans is being used for consumption needs, rather than income-generating or asset-building purposes.
Banks and NBFCs are drawing lessons from earlier stress episodes in segments such as microfinance and personal loans, where rapid growth eventually led to repayment challenges. To avoid a repeat of those situations, lenders are now prioritising stability over aggressive expansion.
Industry associations and financial institutions have collectively agreed that tightening norms early is better than dealing with systemic stress later.
For individuals planning to take a gold loan, the new approach means:
Lower loan amount against the same gold jewellery
Stricter valuation and disbursal norms
Possible slowdown in loan approvals
While gold loans remain one of the quickest ways to raise short-term funds, borrowers may now need to pledge more gold or explore alternative credit options.
The RBI’s intervention highlights the need to balance growth with prudence. While gold loans provide easy liquidity, unchecked expansion during periods of high prices can create vulnerabilities in the financial system.
By tightening LTV norms and slowing down disbursals, banks and NBFCs aim to protect themselves from sharp price corrections and ensure long-term financial stability.
Disclaimer:
This article is for informational purposes only and does not constitute financial advice. Loan terms and eligibility criteria vary across banks and NBFCs. Borrowers are advised to check with lenders and consult financial experts before taking any credit decision.
