Planning to borrow against your gold jewellery this festive season? Before approaching a bank or non-banking financial company (NBFC), it is important to understand the revised Reserve Bank of India (RBI) rules governing gold-backed loans. The framework, notified on June 6, 2025, was required to be implemented by lenders by April 1, 2026.
The revised norms cover commercial banks, small finance banks, regional rural banks, cooperative banks and NBFCs. They introduce changes to loan eligibility, gold valuation, repayment conditions and the return of pledged jewellery.
Higher loan eligibility for smaller borrowers
One of the key changes is the revised loan-to-value (LTV) structure for consumption loans. The earlier uniform ceiling of 75 per cent has been replaced with different limits based on the loan amount.
Loans up to Rs 2.5 lakh: Maximum LTV of 85 per cent
Loans above Rs 2.5 lakh and up to Rs 5 lakh: Maximum LTV of 80 per cent
Loans above Rs 5 lakh: Maximum LTV of 75 per cent
This allows smaller borrowers to access a higher loan amount against the same gold collateral. However, lenders must assess repayment capacity when the loan exceeds Rs 2.5 lakh.
How will lenders value your gold?
The revised rules also specify how pledged jewellery must be valued. Lenders must consider the gold's actual purity and use the lower of its average closing price over the preceding 30 days or the previous day's closing price.
Making charges, precious stones and gems cannot be included while calculating the eligible loan amount. The valuation is therefore based on the intrinsic value of the gold rather than the jewellery's overall purchase price.
Repayment, default and auction rules
Bullet repayment loans taken for consumption purposes cannot have a tenure exceeding 12 months. Lenders must also ensure that the prescribed LTV limit is maintained throughout the loan period, including the interest payable at maturity.
In case of default, borrowers must receive adequate notice and information before their pledged jewellery is auctioned. The reserve price cannot be below 90 per cent of the current value of the gold. If two consecutive auctions fail, this threshold can be reduced to 85 per cent.
When must lenders return pledged jewellery?
Lenders must return the pledged gold on the day the loan is fully repaid or within seven working days. If a delay is attributable to the lender, the borrower is entitled to compensation of Rs 5,000 for each day beyond the prescribed period, subject to applicable rules.
What should borrowers keep in mind?
A higher eligible loan amount does not necessarily mean borrowing will be affordable. Before pledging jewellery, borrowers should compare interest rates, processing fees, repayment schedules and auction conditions. Gold loans are generally suited to short-term borrowing and should be taken with a clear repayment plan to avoid losing valuable assets.