From Idle Asset To Last-Resort Collateral: Inside India's Gold Loan Surge

The RBI has been wary of the steady surge in gold loans. The central bank has issued several warnings while putting in place mechanisms to curb this surge. 

Come April, non-banking finance companies (NBFCs) and banks offering gold loans will have to ensure the immediate return of collateral once repayment is complete. A stringent 12-month repayment framework has been rolled out, aimed at protecting the borrowers.

About 85% of the borrowers avail loans up to ₹2.5 lakh and 80% up to ₹5 lakh against the yellow metal.

Demand For Gold Loans

The rise in demand for gold loans despite the several curbs implemented by the RBI has caught the attention of India’s policymakers and authorities. 

Why? A critical question emerges for the 2026 fiscal outlook. Is this a strategic move to monetise idle assets at lower rates, or a desperate signal of a middle class stretched to its breaking point?

The RBI’s numbers reveal that gold loans did not surge overnight. Between 2022 and 2024, lending against gold jewellery rose steadily, crossing the ₹1 lakh crore mark without raising alarm. But steadily the outstanding credit has vaulted past ₹4 lakh crore, compressing years of growth into a single phase of expansion.

Analysts said that Indians are opening up to channelising their gold to productive use. "It is not necessarily a cause for concern. With the price rise in gold and gold jewellery, many are opting to go for loans against the metal simply because it is easier to access, and with the RBI's new guideline, the demand is sure to rise further," a senior official at a public sector bank said.   

Rational Liquidity Optimisation

Traditionally, for many households, gold represents cultural savings; it may sit in safe storage for years without being touched. Meanwhile, when cash is needed, using pledged jewellery as collateral can provide a cheaper alternative to unsecured personal loans with significantly higher interest rates. In addition to being processed quickly and with very little paperwork, gold loans are secured by a physical asset, so that lenders perceive less risk than many types of consumer loans. 

In this light, using gold reflects a more proactive approach than stretching monthly earnings through expensive debt. If this behaviour continues on a prudent basis, it represents a shift towards secured credit.

Gold loans have historically been one of the simplest ways for households to monetise jewellery and manage short-term liquidity needs. Most of these loans are taken for three to six months as a stopgap measure for working capital rather than long-term borrowing. The recent changes in loan-to-value norms may even support demand, as higher LTV ratios allow borrowers to access more funds against the same collateral

– Nirupama Soundararajan, Co-Founder and CEO, Policy Consensus Centre

The pace of credit growth is a signal for policymakers: When asset-backed lending doubles within a year, it suggests a decisive change in borrowing patterns. Households are not merely adding loans. They are leaning more heavily on pledged assets to navigate liquidity needs.

From a business imperative, an Angel One report noted that “enhanced household wealth from gold appreciation is potentially stimulating consumer spending and investment.” It added that this synergistic effect strengthens economic resilience during global uncertainty, while the household gold stockpile reinforces its crucial role in global gold markets.

As per estimates, India sits on the largest pile of household gold. According to a few analysts, the actual stock of household gold could be significantly larger than the World Gold Council (WGC) estimate of 25,000 tonnes in 2023. The gold holding is key to India’s macroeconomic stability. 

The problem arises with the booming unorganised gold loan market. About 60% of the gold loan is channeled through unorganised players.

“That creates a huge challenge: they escape regulatory scrutiny, and the interest rates vary. If gold prices drop suddenly, the borrowers will land in trouble and may even lead to a kind of crisis in the financial sector,” the analyst said.

How Gold Prices Expanded Borrowing Power

The credit expansion cannot be separated from the rally in gold prices. In 2022, 24-karat gold was priced below ₹50,000 per 10 grams. By early 2026, it had surged to record levels, dramatically lifting the value of jewellery held in households. Because banks calculate gold loans as a percentage of the collateral’s market price, every rise in bullion automatically increases the amount a borrower can access.

This dynamic creates what bankers informally call a collateral multiplier. The ornament in a locker may be the same, but its lending capacity grows with the market. As valuations climbed, borrowing limits expanded without households needing to acquire new assets. The result is a rapid scaling up of secured retail credit, driven as much by price movements as by fresh demand for funds. 

RBI’s Latest Norms

The RBI has now introduced a tiered loan-to-value (LTV) structure that changes the rules of the loans, which will be in effect from April 1. The RBI has raised the maximum percentage to 85% of the value of the collateralised gold that can be loaned against small gold loans under ₹2.5 lakh, increasing access to short-term liquidity for borrowers reliant upon small gold loans.

There has been no relaxation given in large gold loans above ₹5 lakh, the LTV stays tighter at 75%, limiting businesses to use excessive leverage (100% value of collateral) on large gold assets. If the gold price falls, the value of your pledged gold decreases, potentially triggering a margin call from the lender. In case of a price drop, the borrower will be required either to deposit additional cash or gold to maintain the LTV or risk having the loan recalled. By balancing modest borrowing and large-ticket pledges, the RBI is trying to monitor the financial strength of banks and non-bank financial companies (NBFCs) so that they are not responsible for lending to these borrowers in the event of increasing asset values.

A Stress Signal Beneath The Surface

Traditionally, gold has been a last resort against financial assets in the household of an Indian, and has been used as a buffer against financial hardship. However, the borrowing pattern is showing a shift. Indians are now more open to dipping into their treasure chest and using the idle metal to fulfill immediate financial needs. 

Many households are moving towards pledging jewellery as a way of obtaining a loan because it is generally quicker and less bureaucratic than applying for a new unsecured loan in a time when lenders are more cautious around high-risk retail credit. Households could be using jewellery as a substitute for investment and using it to cover gaps in their finances, like school fees, medical expenses, business losses, and increased EMI payments. 

Some economists still caution that such borrowing patterns may reflect deeper financial pressures within households.

Borrowing broadly comes in three forms. First, smoothing consumption for homes or cars, repaid from future income. Second, fund business investment or cash flows. Both are generally healthy. And third, shocks or consumption where spending outpaces expected income. If gold is being used as last-resort collateral for households, a surge in gold loans may signal financial stress and a need for different insurance mechanisms

– Rahul Ahluwalia, Founder-Director, Foundation for Economic Development.

In India, gold is a time-honoured form of security at home. In recent years, it has taken on additional meanings, such as using gold to finance consumption and support cash flow and bank credit growth.