As gold prices fluctuate, lenders are proactively addressing loan-to-value (LTV) breaches in gold-backed loans by requiring borrowers to pledge more collateral or repay part of their principal, particularly for loans issued in February.
Key Points
- Lenders are demanding additional gold collateral or partial principal repayment from borrowers whose gold loan LTVs have been breached due to recent gold price corrections.
- Loans disbursed in February are under close scrutiny, while those from January and March are less affected by the recent price fluctuations.
- Gold prices corrected by 17 per cent from their peak in late January to late March, with a nearly 9 per cent decline since the West Asia conflict began.
- The RBI has stated there is no cause for concern regarding gold loans, noting their contained share in overall bank credit and system-level LTV below 70 per cent.
- New regulatory guidelines from April 1 will provide additional LTV buffers, potentially reducing mark-to-market actions for smaller loans, though the Association of Gold Loan Companies has sought a deferment.
Lenders are closely monitoring volatility in gold prices after the yellow metal corrected from its peak, with borrowers being asked to either pledge additional gold or repay part of the principal in cases where loan-to-value (LTV) thresholds are breached, industry sources said.
According to a senior banker at a private sector bank, gold loans disbursed in January and earlier are unlikely to see a significant impact, while loans issued in March are also expected to remain largely unaffected due to the recent price correction.
"The key area to monitor is loans disbursed in February," the banker said.
Gold Price Fluctuations and Lender Response
Gold prices have corrected by 17 per cent from their peak of Rs 1.74 lakh per 10 grams on January 29 to Rs 1.45 lakh as of March 25.
Since the outbreak of the conflict in West Asia late last month, prices have declined by nearly 9 per cent.
Gold prices recovered to some extent on Wednesday.
"We monitor accounts on a real-time basis through system-driven processes to check for any breach in LTV ratios.
"In case of a breach, borrowers are immediately being contacted to either repay part of the outstanding amount or provide additional gold as collateral.
"We also undertake portfolio-level analysis to ensure LTV remains at comfortable levels," a senior public sector banker said.
Growth in Gold-Backed Loans and Regulatory Oversight
Gold-backed loans have seen strong growth in recent quarters, driven by a slowdown in unsecured lending amid rising asset quality concerns as well as higher gold prices.
About the surge, the Reserve Bank of India (RBI), in its February monetary policy, said there was no cause for concern, noting that the segment's share in overall bank credit remains contained and the system-level LTV ratio is below 70 per cent.
According to a CRIF report, gold loans have emerged as the second-largest retail loan segment after housing, with a portfolio of Rs 16.2 trillion as on December 31, 2025, growing 44.1 per cent year-on-year (Y-o-Y).
Lender Strategies and Upcoming Guidelines
Lenders had initiated corrective measures when gold prices were rising sharply, given the increasing prominence of gold loans as a retail credit option.
One key step was adopting a more conservative approach to pricing and risk management, industry insiders said.
"Given fluctuations in gold prices, lenders maintained a spread of Rs 200-1,000 from regulatory benchmarks.
"They also introduced low LTV products with lower interest rates, making them more attractive to borrowers.
"In addition, shorter-tenure products of 3-9 months were rolled out to reduce long-term risk exposure, compared to the typical 12-24-month tenure.
"Lenders have also adopted more conservative valuation practices," another private sector banker said.
"Lenders are closely tracking accounts where LTV levels have risen to 85-90 per cent, with such accounts being segregated and monitored more intensively.
"Borrowers in this category are being asked to pay margin amount," he said, adding that going forward, if gold prices correct further, lenders are expected to continue focusing on low LTV products, shorter tenures, and conservative pricing for new loans.
For the existing portfolio, they may ask borrowers to either repay part of the loan or provide additional collateral to remain within permissible limits.
From April 1, revised regulatory guidelines will come into effect, providing additional buffers of 5-10 per cent depending on loan size.
For smaller loans, permissible LTV could rise to around 80-85 per cent, reducing the likelihood of mark-to-market-triggered actions for a large segment of borrowers.
However, the Association of Gold Loan Companies (Agloc) has sought a six-month deferment of RBI's revised guidelines on lending against gold and silver collateral, citing emerging geopolitical uncertainty and risks to credit access, in representations to the RBI and the finance ministry.
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