Banks tighten gold-loan leash after RBI flags default risk as prices soar

Banks and non-banking financial companies (NBFCs) have begun tightening their restrictions on gold loans following the surge in gold prices. The Reserve Bank of India (RBI) fears gold loan defaults due to rising gold prices. The central bank has conveyed its concerns to banks and NBFCs, prompting them to exercise caution in granting gold loans.

Gold loans double

Since March 2025, there has been a 100 per cent increase in gold loan borrowings. In April 2024, gold loans from banks amounted to Rs 1.01 lakh crore, which increased to Rs 3.37 lakh crore by October 2025. However, the reckless disbursement of gold loans by banks and NBFCs has raised concerns for the Reserve Bank of India, the banking sector regulator. The RBI fears that banks could face a crisis of gold loan defaults.

Also read: Gold price hits record Rs 1.38 lakh per 10 grams

Strictness regarding gold loans

Following the RBI’s concerns and fluctuations in gold prices, banks and NBFCs have begun tightening gold loan regulations. They have reduced the loan-to-value (LTV) ratio for gold loans, meaning that you will receive less loan against the gold you pledge. Banks and NBFCs that previously offered loans up to 70–72 per cent of the gold value have now reduced this to 60–65 per cent.

Gold loan is secure

Speaking to The Federal Desh, Ashwani Rana, a banking expert and founder of Voice of Banking, said after the price hike, more people have started taking gold loans. However, the advantage of these loans is that the bank holds the gold as collateral, securing the loan. He added that for gold loans over Rs 5 lakh, the initial loan should only be 60 per cent of the gold’s value. If gold prices rise later, the difference can be passed on to the customer. This will avoid any loss to the customer or any inconvenience to the bank.

Also read: Why silver is likely to dazzle in 2026 too, after a spectacular 2025

The RBI’s primary concern is that borrowers are taking advantage of higher gold prices to borrow more. However, global uncertainty, currency fluctuations, and geopolitical tensions are causing sharp fluctuations in gold prices. If gold prices fall by 10–15 per cent, the value of pledged jewellery will fall below the outstanding loan amount. Borrowers may avoid repaying their loans, leading to increased NPAs for banks due to defaults.

Gold becomes 75 per cent costlier in 2025

The year 2025 saw a historic surge in gold prices. This year, gold prices have risen by more than 75–80 per cent. On January 1, 2025, gold was trading at Rs 78,000, and now it is trading at around Rs 1,38,000. This means gold has become more expensive by Rs 60,000 in just one year. The surge in gold prices has resulted in a sharp increase in gold loan borrowing from banks and NBFCs.

Also read: Gold’s glittering 2025 run sets the stage for more gains in 2026

However, the worrying factor is that people are not taking loans to increase their income or build assets, but rather for consumption, meaning they are making purchases on credit. This is why banks and NBFCs have begun tightening their restrictions on granting gold loans.

(This report was originally published in The Federal Desh)