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Sharp fluctuations in gold prices have increased the regulator’s concern. After the warning from RBI, banks and NBFCs have now become cautious in giving gold loans. Its effect will be that customers will be able to get less loan than before.
New Delhi. The Reserve Bank of India (RBI) has expressed concern about the increasing volatility in gold prices, after which banks and NBFCs have started strictness in giving gold loans. Following the regulator’s advice, institutions are now taking steps to reduce risks. This will have a direct impact on the borrowers, because now less loan will be available for the same quantity of gold than before.
LTV reduced, pace of loan giving slow
According to sources, banks and NBFCs which earlier gave gold loans at loan-to-value (LTV) of 70-72 percent, have reduced it to 60-65 percent. RBI has especially termed sharp changes in gold prices as a risk due to currency fluctuations and global uncertainties. The regulator believes that aggressive lending may impact asset quality in the future, hence caution is necessary.
Risk increases due to rise in gold price
Bankers say that if gold prices fall by 10-15 per cent, the value of the pledged jewelery may be less than the outstanding amount of the loan. In such a situation, borrowers may shy away from repaying loans and banks may have to suffer losses. At present, gold is trading at around Rs 1.31 lakh per 10 grams on MCX spot, which shows an increase of 20 percent in the last three months and 35 percent in six months.
Sharp increase in gold loans
The gold loan segment has become the fastest growing segment of retail loans in recent months. Since March 2025, there has been an annual increase of up to 100 percent in gold loans for jewelery business and household needs. By October 2025, the amount of loan against gold pledged with banks reached a record level of Rs 3.37 lakh crore, which was Rs 1.01 lakh crore in April 2024. This figure has been creating new records for 18 consecutive months.
Increased concern from young borrowers
One reason for RBI’s concern is the changing profile of borrowers. People in the age group of 31–40 years are taking 40–45 per cent of the total gold loans, while the share of the 21–30 age group has doubled after FY21. The average loan amount is between Rs 80 thousand to Rs 1.5 lakh. Experts believe that a large part of this debt is going for consumption and not for wealth creation. Considering the experiences of previous financial crises, banks and NBFCs are now giving priority to stability, so that any major shock can be avoided in future.
