The government informed the Lok Sabha on Monday that the value of gold jewellery-pledged bank loans has doubled in just one year. 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,” Union Minister of State for Finance Pankaj Chaudhary said in a written reply.
Chaudhary listed measures to improve formal credit availability against gold, particularly for small borrowers needing small-value loans, like 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 lakh on bullet repayment loans, where both principal and interest are due for payment only at the maturity of the loan, as 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.
‘Rising gold prices good for households’
Though the headline retail inflation dipped to a nearly 6-year 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. Chaudhary said the average monthly contribution of gold to core during the last 12 months (July 2024 to June 2025) is about 20 per cent. However, he emphasised that rising prices of gold are good for Indian households. “Since gold in India also serves as an investment avenue, 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.
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