Loans against gold doubled in one year: Government
The pace of resorting to gold loans has jumped in the past one year, data submitted in Lok Sabha indicate. Why are people resorting to gold loans so fast?
Kolkata: Gold prices are on the rise for the past two years. Interestingly, gold loans -- loan taking by pledging gold as a collateral is also rising in tandem. Data presented in the Lok Sabha by the government has pointed too the fact that gold loans have risen by more than 100% in the past one year. The quantum of gold loans zoomed from Rs 1.16 lakh crore in May 2024 to Rs 2.51 lakh crore in May this year.
Why are more and more individuals resorting to gold loans. The answer significantly lies in the rising value of gold, which is an asset which offers a higher LTV (loan-to-value) ratio compared to other secured loans. The authorities have also set forth new steps easing access to gold loans, especially under the amount of Rs 2.5 lakh. It could pave the way for a further adoption of gold loans in the country.
"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,” MoS Finance Pankaj Chaudhary mentioned in a written reply. As the price of gold is rises, the same quantity of gold can fetch a higher amount as loan.
Contribution of gold to core inflation
Interestingly, while the northward march of gold prices helped those seeking to take loans against jewellery or bars or coins, it has also boosted core inflation. Reports stated that in the past one year, the yellow metal has contributed about 20% of the contribution to core inflation every month. (Core inflation is a measure of inflation which is determined by excluding food and energy which are usually quite volatile. Thus core inflation is a clear gauge of price rise on a stable basis without the volatile elements. Significantly, core inflation has surged to 4.6%, which is a 21 month high in June. However, cooling food prices have pulled retail inflation down to 2.1%. (SBI Research, by the way, has predicted a sub-2% retail inflation by July.)
New RBI guideline
The new rules state that the LTV ratio in gold loans is going up from 75% to 85% for loans under Rs 2.5 lakh. For loans between Rs 2.5 lakh to Rs 5 lakh, the LTV is 80%. If the loan is above Rs 5 lakh, the LTV will remain at the existing 75%. RBI has also said that in case of bullet repayment, the cap of Rs 4 lakh is being removed for loans in cooperative and regional rural banks. All these will become effective from January 1, 2026.
RBI has also said that once a loan is repaid, the pledged gold has to be returned within a period of seven working days. If the lender takes more time, it must pay a fine of Rs 5,000 a day to the borrower as compensation, says the new rule. Delayed return of pledged gold has been a frequent complaint of borrowers.