The value of gold jewellery-backed bank loans has seen a sharp rise, doubling within a year, according to information shared in the Lok Sabha. As per RBI data, gold-backed loans surged from Rs 1.16 lakh crore in May 2024 to Rs 2.51 lakh crore in May 2025. This dramatic increase is attributed to regulatory changes and a shift in borrower preference toward gold loans, which typically offer higher Loan-to-Value (LTV) ratios compared to other secured loans. The government has also introduced new measures to improve access to formal credit for small borrowers, particularly for those seeking smaller loans using gold as collateral.
Among the reforms, the LTV ratio was raised to 85% for loans up to Rs 2.5 lakh and to 80% for loans between Rs 2.5 lakh and Rs 5 lakh. Loans exceeding Rs 5 lakh still have the earlier 75% LTV cap. Additionally, the cap of Rs 4 lakh on bullet repayment loans in cooperative and regional rural banks has been lifted. These steps aim to improve loan accessibility and reduce dependence on informal lending channels.
“Reflecting the combined impact of regulatory efforts and shifting borrower preferences to gold loans due to the relatively higher LTV ratio vis-à-vis other types of collateral, the value of bank loans against gold jewellery increased from Rs 1,16,777 crore in May 2024 to Rs 2,51,369 crore in May 2025 as per the data published by the RBI,” Minister of State in the Finance Ministry, Pankaj Chaudhary said in a written reply.
To curb malpractices, the RBI has imposed restrictions on extending loans where there is ambiguity regarding gold ownership and has discouraged the re-pledging of gold or silver collateral by lenders. Loan renewals will now require a formal borrower request, proper credit assessment, and adherence to LTV norms, especially for bullet repayment loans, which can only be renewed once accrued interest is settled.
At the same time, gold has increasingly contributed to retail price inflation. Although headline retail inflation dropped to 2.1% in June, a six-year low, core inflation rose to a 21-month high of 4.6%, driven significantly by rising gold prices. Over the past year, gold has accounted for about 20% of the monthly contribution to core inflation.
Chaudhary noted that gold plays a dual role in Indian households — as both a consumption item and an investment. With gold seen as a hedge against economic uncertainty, rising prices may actually boost household spending due to the wealth effect, where the value of existing gold holdings increases. This could have varying effects across states and communities, particularly where gold is deeply embedded in cultural practices. Ultimately, gold’s appreciation is viewed as a shift from cash to a potentially appreciating asset.
RBI gold loan rules
The Reserve Bank of India (RBI) has issued a revised framework for gold and silver loans, effective April 1, 2026. Aimed at improving borrower access and strengthening lender accountability, the rules apply to all banks, NBFCs, and housing finance companies. Key changes include an increased Loan-to-Value (LTV) ratio of 85% for loans up to Rs 2.5 lakh, and removal of credit checks for small-value loans. Bullet repayment loans must be settled within 12 months. Pledge limits are now capped, and lenders must return gold promptly after repayment. Auctions require transparency, and communication must be in the borrower’s local language for better clarity.