Loan against gold jewellery surged more than 100% in one year
Value of bank loan pledging gold jewellery has doubled in just one year, Lok Sabha was informed on Monday. Meanwhile, with the rise in prices, average monthly contribution of gold in core retail inflation (Headline inflation minus fuel and food inflation) has touched 20 per cent.
“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 ₹1,16,777 crore in May 2024 to ₹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.
The Minister listed measures to improve formal credit availability against gold, particularly for small borrowers requiring small value loans, such as raising the maximum Loan-to-Value (LTV) ratio for consumption loans against gold collateral to 85 per cent for loans up to ₹2.5 lakh, and 80 per cent for loans between ₹2.5 lakh and ₹5 lakh, while the previous limit of 75 per cent remains for loans above ₹5 lakh. The earlier cap of ₹4 lakhs on bullet repayment loans (where both principal and interest are due for payment only at the maturity of the loan), applicable to Cooperative Banks and Regional Rural Banks, has been removed.
Further, to discourage informal lending practices, RBI has imposed restrictions on extending gold loans in case of ambiguity in the collateral’s ownership and the practice of lenders repledging gold/ silver collateral. Additionally, “lenders may renew loans upon a formal borrower request, subject to credit assessment, permissible LTV limits, and the loan being classified as ‘standard’, with bullet repayment loans eligible for renewal upon settlement of accrued interest,” he said.
Share of gold prices in core inflation
Though the headline retail inflation dipped to nearly 6 years low to 2.1 per cent in June, core inflation rose to a 21-month high of 4.6 per cent mainly on account of increase in the prices of precious metals, among others. Chaudhary said, “the average monthly contribution of gold to core during the last twelve months (July 2024 to June 2025) is about 20 per cent.” However, he emphasised that rising price of gold is good for Indian households.
According to him, gold in India serves a dual role—not only as a consumption item but also as an investment avenue, as it is considered a safe haven asset for hedging against uncertainties. Thus, “an increase in gold price positively influences household consumption through the wealth effect, as the notional value of existing gold holdings appreciates,” he said. A sustained high gold price may have differential effects across States or population groups, particularly those with greater socio-cultural and economic reliance on gold, where gold purchase is traditionally mandated for social occasions. However, “it can also be viewed as a conversion of one asset (cash) into another (gold), with the potential for appreciation in value over time,” he explained.
Published on July 28, 2025
