Customers seeking a loan against gold jewellery will not get the benefit of the recent surge in gold prices. In fact, they may now have to settle for an amount  less than they could perhaps have got about a few months earlier.

The reason: Most lenders are now also reducing the value of gold (being given as security) by about 10 per cent on account of price volatility, besides reducing another 15 per cent towards making charges, while arriving at the loan amount they will offer to customers.

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This is over and above the usual practice of considering the 90-day average price for evaluating the value of gold jewellery (based on caratage) that companies like Manappuram Finance and Muthoot Finance follow.

Consider this: Standard gold in spot Mumbai's Zaveri Bazar was trading at Rs 26,155 per 10 gram on August 16.

But, if a borrower pledges his gold holding, companies will consider the price of Rs 22,796 per 10 gm (90-day average price) only for standard gold.

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Since the jewellery requires mixing of other metals like copper for strength, this so-called impurity gives assessors room to lower the caratage of gold jewellery.

Now, with the new deductions in place, the value of gold that lenders will consider will work out to Rs 17,097.

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Meanwhile, loan-to-value (LTV) varies across companies. For example, Muthoot maintains 71 per cent of LTV irrespective of gold price movement.

"We maintain 71 per cent LTV at all times.

But, we do factor in 15 per cent of invisible making charge, which is not considered at the time of evaluating gold jewellery at any of the branches," said George Alexander Muthoot, managing director of India's largest gold loan company Muthoot Finance.

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The company currently holds 120 tonnes of gold in jewellery form with asset under management (AUM) of around Rs 19,000 crore (Rs 190 billion).

Customers did get price rise benefit as this reflected in the average price calculation, Muthoot added.

When asked about the company's strategy over protection from price fall in future, as forecast, he said: "A majority of our gold jewellery holding is redeemed within 4-5 months, irrespective of price movement and, hence, there is no need to worry about it."

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Meanwhile, its nearest competitor, Manappuram Finance, has kept the LTV intact between 75 and 85 per cent, depending on customer's profile.

I Unnikrishnan, managing director of Manappuram Finance, India's second-largest listed gold loan company with AUM of over Rs 9,000 crore (Rs 90 billion), says: "We avoid large new borrowers, pledging over 100 grams of gold, as a precaution to protect our profits in case gold price comes down, which is a possibility."

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Gold price has risen over 24 per cent since April 1 this year in both rupee and dollar terms.

Experts term this "overbought" and the metal's downward journey looks imminent.

In dollar terms, gold was trading at $1,780.82 an oz on Tuesday, compared to the level of $1,428.80 an oz on April 1.

"Although, we are not in the business of forecasting gold prices, the commodity looks overbought.

Hence, we are taking some precautionary measures, including factoring in the possibility of a fall in prices, to prevent rise in NPA," he added, without elaborating much on the measures.

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Generally, customers' default ratio increases when the price of gold falls below the borrowing level.

Today, this ratio, or NPA, stands between 0.79 per cent and 1 per cent.

Currently, there are around 10,000 large-value customers across all gold loan companies - 2,500-3,000 with Manappuram Finance alone.

Muthoot Finance also has around 4,000 such customers, while the rest are spread among all other institutions in similar businesses.

Another large player, HDFC Bank, offers loan at 85 per cent LTV.