Indian banks and Non-Banking Financial Companies (NBFCs) have started tightening rules for gold loans. This comes after the Reserve Bank of India (RBI) raised concerns over rising volatility in gold prices.
According to a report by the Financial Times, the RBI has asked lenders to be more cautious while giving gold loans.
Earlier, many institutions were offering loans worth 70–72 percent of the gold’s value. Now, they have reduced the loan-to-value (LTV) ratio to around 60–65 percent. This clearly shows that banks and NBFCs are taking a stricter approach.
Why RBI Is Worried About Gold Loans
The RBI is concerned about sharp fluctuations in gold prices, mainly due to currency movements and global uncertainty.
Because of this, it has advised lenders to slow down gold loan disbursements and strengthen their risk management systems.
One major concern is that borrowers are using high gold prices to take larger loans. With bullion prices moving sharply, the RBI fears that aggressive lending against gold may hurt banks’ asset quality in the future.
What Happens If Gold Prices Fall?
Banks are worried that if gold prices drop by even 10–15 percent, the loan amount may become higher than the value of the pledged jewelry. In such cases, borrowers may choose not to repay their loans, reducing the value of the collateral.
This risk is not limited to households alone. A sharp fall in gold prices could significantly increase default risks for banks and NBFCs.
Gold Prices at Record High Levels
At present, gold prices on MCX Spot are around ₹1.31 lakh per 10 grams. Gold prices have increased by about 20 percent in the last three months and nearly 35 percent in the past six months. This sharp rise has further boosted demand for gold loans.
Gold Loans Are Growing Rapidly
Gold loans have become one of the fastest-growing segments in retail lending. RBI’s move highlights that managing risk is just as important as growth.
For borrowers, this means they will now receive a lower loan amount for the same quantity of gold.
This tightening comes at a time when gold loans to households and jewellers have surged. Since March 2025, gold loans have grown nearly 100 percent on a year-on-year basis.
Gold Loan Amounts Hitting New Records
Loans against gold jewelry have reached record highs for 18 straight months. In October 2025, the total value of gold loans stood at ₹3.37 lakh crore, compared to ₹1.01 lakh crore in April 2024. Since March 2025, loans against jewelry have been doubling every month.
Borrower Profile Raises Concerns
Banks and NBFCs are also worried about the age profile of borrowers. According to a senior executive from a gold loan NBFC, people aged 31–40 make up around 40–45 percent of gold loan borrowers.
The share of borrowers aged 21–30 has doubled since FY21. Currently, the average gold loan size ranges between ₹80,000 and ₹1.5 lakh.
A major concern is that much of this borrowing is being used for consumption rather than for creating productive assets.
Lessons From Past Financial Crises
Rising borrowing and repayment stress have forced lenders to tighten credit. Past experiences from microfinance and personal loan crises have made institutions more cautious to avoid creating systemic risks again.
Industry bodies and lenders are now focusing on financial stability instead of aggressive growth. As a result, gold loan regulations are being tightened to reduce future risks and protect the financial system.
