Indian banks and NBFCs have begun tightening lending limits on gold loans after the Reserve Bank of India (RBI) flagged concerns over rising volatility in gold prices. Sources said the regulator has advised lenders to exercise caution in the gold loan segment. Institutions that earlier extended loans at higher loan-to-value (LTV) ratios of 70–72% have now scaled back to 60–65%, reflecting a more conservative stance.
“The regulator is exercising caution and has raised concerns over rising volatility, particularly due to currency fluctuations,” said a banker familiar with the matter. He added, “The RBI has urged prudence, pushing banks and NBFCs to slow disbursements and strengthen risk management.” The regulator’s note of caution stems from borrowers leveraging higher gold prices to access larger sums. With global uncertainties and currency swings driving erratic movements in bullion, the RBI fears aggressive lending against gold could expose banks to asset quality risks.
LTV Retrenchment
“The concern is that if gold prices decline by 10–15%, the outstanding loan value could exceed the value of the pledged jewellery, discouraging borrowers from repaying and leaving banks exposed on collateral.” Such a scenario would not only hurt households but also increase default risks for banks, given the reduced cushion in collateral value. Currently, gold prices on the MCX Spot are quoting at Rs 1.31 lakh per 10 grams, up 20% in the last three months and 35% in the last six months.
The segment has emerged as one of the fastest-growing retail credit categories. The RBI’s intervention highlights the need to balance growth with risk management. For borrowers, the shift means reduced loan eligibility against the same quantity of gold. The caution comes at a time when gold loans to jewellery businesses and households have surged, recording a 100% year-on-year jump since March 2025. The value of loans against gold jewellery pledged with banks has continued to hit all-time highs for 18 consecutive months, reaching Rs 3.37 lakh crore in October 2025 compared to Rs 1.01 lakh crore in April 2024. Since March this year, loans against jewellery have doubled every single month.
Shifting Demographics
Apart from rising gold prices, concerns also stem from borrower demographics. The younger population has driven demand, with those aged 31–40 accounting for nearly 40–45% of gold loans, while participation from the 21–30 age group has doubled since FY21. The average ticket size today stands at approximately Rs 80,000–1.5 lakh, says a senior official with a gold NBFC. Concerns are much of this borrowing appears to be directed towards consumption rather than asset creation.
A senior official at a gold-focused NBFC confirmed the development, with lenders tightening credit due to rising concerns over excessive borrowing and repayment stress. He stated that past experiences with microfinance and personal loan crises have made institutions wary of repeating systemic vulnerabilities, prompting them to adopt stricter norms. “Industry associations and lenders have collectively chosen stability over aggressive growth, tightening credit to safeguard against potential shocks,” he added.