Indian banks and Non-Banking Financial Companies (NBFCs) have started tightening their rules for gold loans. This move comes after the Reserve Bank of India (RBI) raised concerns about the sharp volatility in gold prices.
According to a report published by the Financial Times, the RBI has asked lenders to be more cautious while giving loans against gold.
Earlier, many banks and NBFCs were offering gold loans worth 70–72 percent of the gold’s value. However, lenders have now reduced the loan-to-value (LTV) ratio to around 60–65 percent.
This clearly shows that financial institutions are taking a stricter and more conservative approach to gold lending.
Why RBI Is Worried About Gold Loans
The RBI’s concern has increased mainly due to frequent and sharp fluctuations in gold prices.
These price movements are being driven by global uncertainty and changes in currency values. The central bank fears that sudden changes in bullion prices could increase risk for lenders.
Another major concern is that borrowers are taking advantage of record-high gold prices to borrow larger amounts. With gold prices rising rapidly, people are pledging their jewelry to get higher loans.
The RBI believes that aggressive lending in such conditions could negatively affect the asset quality of banks and NBFCs.
As a result, lenders have been asked to slow down gold loan disbursements and strengthen their risk management systems.
What Happens If Gold Prices Fall?
Banks are especially worried about what could happen if gold prices fall sharply. Even a 10–15 percent drop in gold prices could create serious problems.
In many cases, the outstanding loan amount may become higher than the value of the pledged gold jewelry.
If this happens, borrowers may choose not to repay their loans, as the collateral would no longer fully cover the loan amount. This would weaken the security held by banks and increase the risk of defaults.
The impact would not be limited to households alone. Rising defaults could also put pressure on banks and NBFCs, increasing their overall financial risk.
Gold Prices at Record High Levels
Currently, gold prices are trading at record levels. On the MCX Spot market, gold is priced at around ₹1.31 lakh per 10 grams. Gold prices have increased by nearly 20 percent in the last three months and about 35 percent in the past six months.
This sharp rise in prices has further boosted demand for gold loans, as borrowers see an opportunity to raise more funds against their gold holdings.
Gold Loans: A Fast-Growing Credit Segment
Gold loans have become one of the fastest-growing segments in retail lending. The RBI’s intervention makes it clear that while growth is important, proper risk management is equally necessary.
For borrowers, this tightening means that they will now receive a lower loan amount for the same quantity of gold. The stricter LTV norms are expected to slow down excessive borrowing.
This regulatory tightening comes at a time when gold loans to jewellers and households have increased sharply. Since March 2025, gold loan growth has been close to 100 percent on a year-on-year basis.
Gold Loan Amounts Hit New Records
Loans taken against gold jewelry have been reaching record highs for the past 18 consecutive months. In October 2025, the total value of gold loans reached ₹3.37 lakh crore. This is a massive jump compared to ₹1.01 lakh crore recorded in April 2024.
Since March 2025, the value of loans against gold jewelry has been doubling almost every month, highlighting the rapid expansion of this segment.
Borrower Profile Raises Fresh Concerns
Apart from gold prices, banks and NBFCs are also worried about the changing profile of borrowers. According to a senior executive at a gold-focused NBFC, people aged between 31 and 40 years account for nearly 40–45 percent of gold loan borrowers.
The share of borrowers in the 21–30 age group has doubled since FY21. At present, the average gold loan size ranges between ₹80,000 and ₹1.5 lakh.
A major concern is that a large portion of these loans is being used for consumption purposes rather than for creating productive assets or income-generating activities.
Lessons From Past Financial Crises
Lenders are becoming cautious due to rising borrowing levels and increasing repayment stress. Past experiences with crises in microfinance and personal loan segments have taught banks and NBFCs to avoid excessive risk-taking.
Industry associations and lenders have now decided to focus more on stability rather than aggressive growth. By tightening gold loan regulations, financial institutions aim to reduce future risks and prevent potential systemic problems.
