Gold Loans Surge as Prices Rise: Borrowers Turn to Gold Amid New RBI Reforms

India is witnessing a sharp rise in gold jewellery-backed bank loans, with outstanding amounts more than doubling in just one year. According to Reserve Bank of India (RBI) data presented in the Lok Sabha, gold-backed loans jumped from ₹1.16 lakh crore in May 2024 to ₹2.51 lakh crore in May 2025. 

This growth is being fueled by soaring gold prices, relaxed lending norms, and a growing borrower preference for using gold as collateral.

Why the Surge in Gold Loans?

Several factors have contributed to this steep rise in gold-backed credit:

• Higher Loan-to-Value (LTV) Ratios: Borrowers now get more value from their gold. For instance, loans up to ₹2.5 lakh now allow an LTV of 85%, and those between ₹2.5 lakh and ₹5 lakh have an 80% LTV cap. Loans above ₹5 lakh retain the earlier 75% limit.
• Policy Reforms for Inclusion: The government has lifted the ₹4 lakh cap on bullet repayment loans for cooperative and regional rural banks, expanding formal credit access for small borrowers.
• Consumer Shift: With relatively fewer formalities and quicker approvals, gold loans are becoming a preferred credit option especially in times of economic uncertainty.

RBI Tightens Oversight to Prevent Abuse

To prevent misuse of these loans, the RBI has introduced measures targeting transparency and accountability:

• Ownership Clarity: Loans will not be issued if there’s doubt about gold ownership.
• Restrictions on Re-pledging: Lenders can no longer re-pledge gold or silver used as collateral.
• Stricter Renewals: Bullet repayment loans can only be renewed if the interest accrued is fully cleared, and only after a proper credit assessment.
• Borrower-Centric Communication: All borrower communication, including auction notices, must now be in the local language for improved understanding.

These steps are part of a revised regulatory framework that covers all banks, NBFCs, and housing finance companies.

Gold's Role in Inflation and Spending

While gold serves as a safety net and investment in Indian households, its rising value is also influencing the broader economy. Despite a decline in headline retail inflation to 2.1% in June 2025 (a six-year low), core inflation rose to 4.6%, partly due to gold prices. Over the past year, gold has contributed nearly 20% to the monthly core inflation, showing its impact on household budgets.

What’s Next for Gold Borrowers and Lenders?

As gold continues to be a vital financial asset in Indian homes, the new RBI framework is expected to make gold-backed credit more transparent and accessible, especially for rural and underserved borrowers. At the same time, it seeks to curb misuse and ensure lenders follow responsible lending practices.

Read More: RBI’s New Gold Loan Rules from Jan 2026: What They Mean for You.

Conclusion

The sharp rise in gold-backed loans reflects both evolving borrower behaviour and the economic influence of rising gold prices. With the RBI’s revised regulations, the framework aims to strike a balance between improved access to formal credit and strengthened oversight.

As lenders and borrowers adapt to these changes, the gold loan segment is expected to remain a key component of India’s credit landscape.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.