Gold Loan Rules in India: Key Government Policies and Regulations

In India, the Reserve Bank of India (RBI) is responsible for regulating gold loans to ensure there’s transparency and fairness in the process. A report by ICRA Limited states that the organised Gold Loan market is expected to surpass INR 10 trillion by FY25 and reach INR 15 trillion by March 2027. With such growth expected, it’s crucial that RBI regulations, like the Loan-to-Value (LTV) ratio, interest rate transparency, and gold valuation standards, protect borrowers and ensure market stability. Read on to learn more about these policies.

RBI’s Regulatory Framework for Gold Loans

The Indian banking system handles different types of Gold Loan activities. To ensure fairness and transparency, the RBI has introduced regulations to effectively manage these activities. The guidelines operate to standardise some important aspects such as loan approval, gold valuation, repayment norms, and monitoring. This ensures a clear and uniform lending process across all financial institutions, whether banks, NBFCs, or cooperative banks.

As of 2025, the RBI submitted a draft of regulation frameworks concerning gold loans, proposed to be implemented from January 1, 2026. If implemented, they could bring about significant changes; already, the industry is preparing to adapt.

Some of the major considerations include:

• Loan approval process: The RBI has ordered a standard loan approval process to be followed in respect of all loans to all borrowers, avoiding any discrimination. This includes all loans being approved based on the borrower’s repayment capacity, rather than just collateral value.
• Standardised Practices: Uniform rules of Gold Valuations, LTV Ratios, Rates of Interest, Terms of Loan, etc., laid down as per Government rules will prevent exploitation of any party and, in turn, provide transparency to the whole administration.

These rules make gold loans fully transparent, ensuring borrowers are aware of their rights and protections.

Also Read: What is 1 Pavan of Gold in Grams and How is It Calculated?

RBI’s Loan-to-Value (LTV) Ratio for Gold Loans

The maximum loan amount borrowers can get depends on the value of their pledged gold. This is known as the Loan-to-Value (LTV) ratio.

The RBI’s specific LTV caps to ensure safe lending are:

• Up to INR 2.5 Lakh: LTV ratio up to 85%
• Between INR 2.5 Lakh and INR 5 Lakh: LTV ratio up to 80%
• Above INR 5 Lakh: LTV ratio capped at 75%

These limits prevent over-borrowing, ensuring the loan remains manageable and promoting responsible lending by the RBI. The move makes funds more accessible to small-ticket borrowers against their gold, while keeping higher-ticket loans tightly regulated.

Also Read: Personal Loan vs Gold Loan - All you Need to Know

Increased Transparency and Fair Practices Code

The RBI allows banks and other financial institutions to impose their own interest rates on gold loans, but has mandated that these rates must be fully transparent. This goes beyond the interest rate; all lenders are required to disclose all possible charges, including interest, processing fees, renewal fees, and penalty charges, on their official websites and in their branches. This transparency must also be reflected in loan agreements.

This requirement of transparency is enforced with the Fair Practices Code of the RBI, preventing lenders from charging exorbitantly and instilling confidence in the Gold Loan market.

Gold Valuation and Purity Requirements

The valuation of gold is very important to ascertain that the loan amounts truly correspond to the value of the pledged gold. The RBI maintains that gold taken as collateral should be valued by authoritative evaluators as per market standards, doing away with any subjectivity in the matter.

Key Valuation and Purity Guidelines:

• Collateral gold will be valued based on the market price of 22 carat gold. If the gold has a purity less than 22 carats, the lender is required to translate it into the equivalent of 22 carat purity to then determine its value.
• If in the form of jewellery or coins, the weight cannot exceed 1 kg, and the gold coins must be of 22 carats or higher and sold by banks.
• All gold loans up to INR 2.5 Lakh will be exempt from credit appraisals, and loans below INR 2 Lakh will have no end-use restrictions.
• The purity of the pledged gold must be tested using a certified reagent to ensure it meets the required quality standards.
• The weight of the gold is checked and verified according to its market value, ensuring that the loan amount is proportionate to the actual value of the collateral.

Such a process ensures fairness and clarity in the treatment of both parties when dealing with gold-backed loans.

Also Read: Gold Loan Repayment Strategies

Bullet Gold Loans

• Amount cap: All registered lenders can give a maximum of INR 5 Lakh per borrower for bullet repayment gold loans.
• LTV Ratio: The LTV ratio for bullet repayment loans will be calculated with the total amount to be paid at maturity (principal + interest) rather than just the loan amount sanctioned (only principal).
• Tenure limitation: The maximum tenure for bullet repayments is 12 months so as not to cultivate a long-term debt cycle.
• Renewal and Top-ups: Lenders must consider the borrower’s repayment capacity when determining renewal or top-up, but the same may be applied only after the borrower has paid the accrued interest

These measures help prevent excessive debt and promote financial stability.

Collateral Management

• Lenders have to release gold collateral within 7 working days of the borrower fully repaying or settling the loan.
• Pledged gold collateral that lies unclaimed after the loan is repaid or settled for a period of 2 years can be treated as unclaimed gold, and lenders must periodically attempt to locate the borrower or heirs.
• When a loan goes by without payment and the lenders have seized the gold, they have to follow a set process and timeline before auctioning the gold to recover money. This includes borrowers being present on the day of valuation, and the lender returning any surplus from the auction to the borrower within 7 days.

To Conclude

Gold loans in India follow a transparent, fair, and accessible process due to the Gold Loan regulations set by the RBI. To protect both the borrower and the lender, there are clear guidelines in place regarding LTV ratios, interest rate transparency, gold valuation, and loan tenure.

If you’re looking for a Gold Loan, choose a trusted lender like Poonawalla Fincorp that adheres to governmental regulations and makes the process seamless for borrowers.

FAQs

What is the maximum Loan-to-Value (LTV) ratio for gold loans?

The maximum LTV ratio for gold loans is 85% for loans up to INR 2.5 Lakh, 80% for loans between INR 2.5 Lakh and INR 5 Lakh, and 75% for loans above INR 5 Lakh.

What are the interest rate limits for gold loans in India?

While the RBI does not set a cap on gold loan interest rates, it requires lenders to disclose all charges, including interest rates, clearly to borrowers.

How is the value of gold determined for a loan?

Gold must be evaluated by accredited assessors based on its purity (22 carats or higher) and current market price, ensuring fair valuation.

Can I get a gold loan for business purposes?

Yes, you can get a Gold Loan for business purposes. In fact, in June 2025, the RBI allowed for borrowers to pledge their gold and silver jewellery as loan collateral to access funds for agriculture and small business loans.

What is the maximum tenure for a Gold Loan with bullet repayment?

The maximum tenure for bullet repayment of gold loans is 12 months, as per RBI regulations; this helps prevent long-term financial strain.

How are disputes regarding Gold Loan collateral handled?

The RBI mandates that all gold loan providers must have a transparent auction process for pledged gold in the event of loan default, ensuring fairness in the handling of collateral.