Gold has been on a long and strong bull run since late 2022 and last week it scaled an all-time high of about $4,060 per troy ounce. Indian households collectively hold over 25,000 tonnes of gold, according to a PwC report. At current prices, this treasure trove could be worth over $3.2 trillion – even higher if expressed in rupee terms.
Gold loans have been the most accessible way of monetising gold holdings for Indians. Per an ICRA report, gold loan AUM in the organised market as of FY25 was worth about ₹12 lakh crore. This is projected to reach ₹18 lakh crore by FY27 at a healthy CAGR of 22 per cent.
With gold at all-time high and gold loans finding solid traction, this is a good time to take stock of the implications that gold prices have on your gold loans.
LTV ratio
LTV or loan-to-value ratio is the single-most important number when it comes to gold loans, as it decides key parameters such as the loan amount and interest rate. It is the result of dividing the loan amount by the value of the collateral (gold jewellery). Say, a person gets a ₹2-lakh loan for his jewellery worth ₹3 lakh, then the LTV ratio is 67 per cent.
Currently, per RBI norms, banks and NBFCs need to maintain an LTV ratio of 75 per cent – not only at the time of disbursement but throughout the tenor of the loan. This, despite fluctuations in the value of the collateral.
However, in June this year, the RBI came up with revised guidelines on LTV ratio. Banks and NBFCs need to adhere to these guidelines from April 1, 2026, or even earlier if they can. The new guidelines take the cap on LTV ratio to 85 per cent for loans up to ₹2.5 lakh, 80 per cent for those up to ₹5 lakh and 75 per cent for those above ₹5 lakh. Do note that the loan amount in the formula also includes interest payable.
Rising prices
In a rising price scenario such as the one we have today, the collateral rises in value, thereby bringing the LTV down. In the above example, if the collateral’s value becomes ₹4 lakh, the LTV will fall to 50 per cent. Now, for a given amount of loan, lenders have more collateral than before, and this makes them more comfortable from a risk point of view. And lower risk means lower interest rates. This is true for most financiers, as they reduce interest rates (for fresh loans) to stay competitive.
If you are looking to borrow afresh, this is a good time. You can borrow more for the same jewellery now, than you could have, a year ago. Also, the RBI relaxing LTV cap will act in your favour.
If you already have a loan subsisting, with rising gold prices, your pledged collateral would have gained in value. Hence, the LTV ratio of your account would’ve fallen. You have two options. One, you can apply to your bank or NBFC for a top-up loan on your existing loan. Two, shop for offers from other lenders who offer lower interest rates. If you do get attractive offers, contemplate prepaying your existing loan and getting a fresh loan at lower rates. More importantly, be mindful of any prepayment charges your existing loan’s terms and conditions might stipulate and also of processing charges of your new loan. Ascertain whether the benefit from lower rates exceed the costs, before you proceed.
Falling prices
Borrowers also need to be cautious, as the current rally cannot sustain forever. 2025 is the best year for gold in terms of yearly returns after 1979. If prices fall, the LTV ratio will expand, making lenders subject to higher risk than before.
At the time of underwriting, lenders, in general, will set aside a suitable margin to avoid the LTV ratio exceeding the cap. For example, a bank may lend at an LTV of 65 per cent, keeping a 10 per cent margin (75 minus 65). This can take care of small corrections in gold price. However, in case of sharp declines, lenders can either call for additional collateral or demand part repayment to bring the LTV ratio to comfortable levels.
To avoid this, it is better to be prudent and set aside a sum to carry out the part repayment, in case you don’t have access to additional jewellery to pledge as collateral.
Published on October 11, 2025
