Gold Loan: Banks have changed the rules, so you can learn this before taking out a loan
Following the RBI's warning, banks and NBFCs have tightened the rules for granting gold loans. Given the volatility in gold prices, the loan amount against gold has been reduced from 72% to 60-65%. Banks fear that if prices fall, recovery could be difficult.
Gold Loan: If you're planning to take out a loan against your gold jewelry to meet your immediate needs, this news may disappoint you.
Until now, gold loans were considered the easiest source of cash, but following a warning from the Reserve Bank of India (RBI), financial institutions have tightened lending rules, which will directly impact loan amounts.
Why did the banks change their stance?
The main reason for this sudden change in the gold loan market is the extreme fluctuations in gold prices. The RBI has explicitly warned lenders that the ongoing volatility in the bullion market could pose a threat to the health of banks.
Following this advice, banks that previously offered loans up to 70 to 72 percent of your gold's value (LTV) have now withdrawn their offer. This limit has now been reduced to 60 to 65 percent.
Simply put, if you previously pledged gold worth ₹100,000, you could get up to ₹72,000, but now you'll likely only get ₹60,000 to ₹65,000. Banks have taken this step to strengthen their risk management.
What will happen if the price of gold falls?
Banks are concerned not just about today's prices, but about future concerns. Gold prices are currently skyrocketing—the price on MCX is close to Rs 1.31 lakh per 10 grams. But the question is, what if gold prices fall by 10 to 15 percent tomorrow?
Banks fear that if the value of gold falls, the outstanding loan amount could exceed the value of the pledged gold. In such a situation, borrowers may find it better to default rather than repay the loan, as their pledged gold would become cheaper than the loan amount.
This situation could put significant pressure on banks' asset quality, and sensing this danger, lenders have now adopted a cautious approach.
Young people between 21 and 30 years of age are taking loans in large numbers.
Another major concern for the RBI and banks is the changing profile of borrowers. Data shows that the rate of gold loan borrowing by young people aged 21 to 30 has doubled since fiscal year 2021. Meanwhile, those aged 31-40 account for approximately 45 percent of total gold loans.
The problem is that this money is being used for "consumption," i.e., meeting daily needs and expenses, rather than for building assets or investing in business.
Gold loans have seen a 100 percent year-on-year increase since March 2025. In October 2025, this figure reached a record high of ₹3.37 lakh crore.
After such rapid growth, the industry has now chosen stability over aggressive expansion, to avoid a repeat of past crises like those faced by microfinance and personal loans.
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