Gold has been on a protracted and robust bull run since late 2022 and final week it scaled an all-time excessive of about $4,060 per troy ounce. Indian households collectively maintain over 25,000 tonnes of gold, in keeping with a PwC report. At present costs, this treasure trove may very well be value over $3.2 trillion – even larger if expressed in rupee phrases.
Gold loans have been probably the most accessible means of monetising gold holdings for Indians. Per an ICRA report, gold mortgage AUM within the organised market as of FY25 was value about ₹12 lakh crore. That is projected to succeed in ₹18 lakh crore by FY27 at a wholesome CAGR of twenty-two per cent.
With gold at all-time excessive and gold loans discovering strong traction, this can be a good time to take inventory of the implications that gold costs have in your gold loans.
LTV ratio
LTV or loan-to-value ratio is the single-most vital quantity with regards to gold loans, because it decides key parameters such because the mortgage quantity and rate of interest. It’s the results of dividing the mortgage quantity by the worth of the collateral (gold jewelry). Say, an individual will get a ₹2-lakh mortgage for his jewelry value ₹3 lakh, then the LTV ratio is 67 per cent.
Presently, per RBI norms, banks and NBFCs want to keep up an LTV ratio of 75 per cent – not solely on the time of disbursement however all through the tenor of the mortgage. This, regardless of fluctuations within the worth of the collateral.
Nevertheless, in June this yr, the RBI got here up with revised pointers on LTV ratio. Banks and NBFCs want to stick to those pointers from April 1, 2026, and even earlier if they’ll. The brand new pointers take the cap on LTV ratio to 85 per cent for loans as much as ₹2.5 lakh, 80 per cent for these as much as ₹5 lakh and 75 per cent for these above ₹5 lakh. Do notice that the mortgage quantity within the components additionally consists of curiosity payable.
Rising costs
In a rising value situation such because the one now we have at present, the collateral rises in worth, thereby bringing the LTV down. Within the above instance, if the collateral’s worth turns into ₹4 lakh, the LTV will fall to 50 per cent. Now, for a given quantity of mortgage, lenders have extra collateral than earlier than, and this makes them extra snug from a danger viewpoint. And decrease danger means decrease rates of interest. That is true for many financiers, as they scale back rates of interest (for contemporary loans) to remain aggressive.
If you’re trying to borrow afresh, this can be a good time. You may borrow extra for a similar jewelry now, than you possibly can have, a yr in the past. Additionally, the RBI stress-free LTV cap will act in your favour.
If you have already got a mortgage subsisting, with rising gold costs, your pledged collateral would have gained in worth. Therefore, the LTV ratio of your account would’ve fallen. You’ve two choices. One, you may apply to your financial institution or NBFC for a top-up mortgage in your current mortgage. Two, store for affords from different lenders who supply decrease rates of interest. In case you do get engaging affords, ponder prepaying your current mortgage and getting a contemporary mortgage at decrease charges. Extra importantly, be aware of any prepayment expenses your current mortgage’s phrases and circumstances would possibly stipulate and in addition of processing expenses of your new mortgage. Confirm whether or not the profit from decrease charges exceed the prices, earlier than you proceed.
Falling costs
Debtors additionally should be cautious, as the present rally can not maintain without end. 2025 is the very best yr for gold when it comes to yearly returns after 1979. If costs fall, the LTV ratio will broaden, making lenders topic to larger danger than earlier than.
On the time of underwriting, lenders, typically, will put aside an appropriate margin to keep away from the LTV ratio exceeding the cap. For instance, a financial institution could lend at an LTV of 65 per cent, preserving a ten per cent margin (75 minus 65). This will care for small corrections in gold value. Nevertheless, in case of sharp declines, lenders can both name for extra collateral or demand half reimbursement to convey the LTV ratio to snug ranges.
To keep away from this, it’s higher to be prudent and put aside a sum to hold out the half reimbursement, in case you don’t have entry to further jewelry to pledge as collateral.
Revealed on October 11, 2025
