Gold Loans Gain Popularity in India as High Gold Prices Boost Borrowing

Gold is taking on a new role in Indian households. Traditionally viewed as a long-term store of wealth, jewellery is increasingly being used as collateral to raise funds, with more people opting for gold loans instead of selling their precious metal.

The trend has accelerated in 2026 amid elevated gold prices. According to the data provided, credit against gold jewellery by NBFCs, including housing finance companies, grew 68.5% year-on-year in July 2026, compared with 43.9% a year earlier. Bank lending against gold jewellery also recorded strong growth of 88.1% year-on-year.

By the end of July, outstanding gold-backed credit stood at around ₹3.54 lakh crore for NBFCs and ₹5.52 lakh crore for banks.

Rising gold prices support larger loans

One of the key factors behind the growth in gold loans is the sharp increase in gold prices. During the second quarter of 2026, domestic gold prices were reported to be 59% higher than a year earlier, despite some correction from their previous highs.

Higher gold prices can increase the borrowing capacity of customers pledging the same quantity of jewellery, subject to the applicable loan-to-value limits.

Borrowers can retain their jewellery

For many Indian families, gold has both financial and emotional value. Selling jewellery provides immediate cash, but permanently parts with the asset. A gold loan offers another option: the jewellery is pledged as security and can be returned once the loan is fully repaid.

This has made gold loans useful for people looking to meet short-term financial requirements such as medical expenses, education costs, business needs and other major expenditures.

The trend is also notable because gold recycling has reportedly declined despite remaining higher year-on-year, suggesting that some gold owners are increasingly choosing to borrow against their holdings rather than sell them.

Banks expand their presence

Gold lending has traditionally been a significant business for specialised NBFCs. However, banks are also expanding their presence in the segment.

Bank gold loans reportedly stood at around ₹5.52 lakh crore in July 2026, compared with approximately ₹5.1 lakh crore at the end of May, when year-on-year growth was reported at 105%.

RBI framework brings greater standardisation

The growth in gold-backed lending has taken place alongside a stronger regulatory framework. The RBI`s Lending Against Gold and Silver Collateral Directions, 2025 introduced standardised requirements covering areas such as valuation, assaying, loan-to-value ratios and the release of pledged collateral.

For consumption loans, the maximum LTV ratios are:

- 85% for loans up to ₹2.5.5 lakh

- 80% for loans above ₹2.5 lakh and up to ₹5 lakh

- 75% for loans above ₹5 lakh

The changing gold-loan market reflects how Indian households are increasingly using gold not only as a store of wealth but also as a financial asset that can provide access to formal credit when funds are needed.

Note: The figures and regulatory details above are based on the source material provided.