Borrowers Face Dilemma: Weighing Benefits and Risks of Gold Loans Amid Volatile Market Conditions

Gold Loans Surge in India, Exceeding Rs 3.3 Lakh Crore in Outstanding Loans

As of late 2025, the Reserve Bank of India (RBI) reported an outstanding gold loan balance of over Rs 3.3 lakh crore, representing a significant increase of nearly 128% year-on-year. This growth is attributed to the rising demand for gold loans, fueled by the sharp upswing in gold prices.

Market Value of Gold

The market value of gold has nearly doubled over the past year, driven by geopolitical tensions, safe-haven demand, central bank buying, and the ongoing conflict between the US, Israel, and Iran. As of March 3, 2026, 24-carat gold was trading at Rs 1.66 lakh per 10 grams, delivering returns of over 80% over the past year.

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Gold Loans: Quick Liquidity and Relatively Lower Interest Rates

Gold loans offer quick liquidity, relatively lower interest rates, and shorter tenures, making them an attractive option for borrowers. Currently, financial institutions are offering gold loans starting from 8.50% per annum. Public sector banks offer higher disbursements and lower rates, with many banks lowering their lending rates due to the RBI's lower repo rate of 5.25%.

Interest Rates on Gold Loans

Interest rates on gold loans vary across financial institutions. For example:

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• Axis Bank: Offers a gold loan at a fixed interest rate of up to 17%, while its repo-linked rate starts at 9.75%.
• Karur Vysya Bank: Offers up to 14% fixed rate on gold loans.

Loan-to-Value (LTV) Ratio

The RBI mandates regulated entities to maintain the highest permitted LTV ratio at the time of gold loan disbursal. The LTV ratio is crucial in determining the loan amount and adjusting price volatility against the gold loan.

Should You Opt for Gold Loan?

Gold is widely regarded as a safe-haven asset during periods of uncertainty. However, borrowers should be aware of the consequences of opting for gold loans when prices are high and volatile. Volatility in gold prices can cause significant confusion among borrowers, and the risk of margin calls or additional collateral requirements increases.

Checklist for Borrowers

Before disbursing gold loans, financial institutions perform checks and balances. Borrowers must have:

• KYC documents (identity proof and address proof)
• Gold jewellery or coins that can be pledged, along with bills to prove ownership
• Assaying and valuations of gold to determine its purity and maximum loan amount

Fees and Charges

Financial institutions charge fees for processing the gold loan, assaying, documentation, valuation, and 18% goods and services tax (GST), as applicable. These charges are detailed on the final loan copy agreement and are available on the financial institution's official portal.