Gold Loan LTV Ratio Explained (75% to 85%): What It Means for Borrowers

In June 2025, the Reserve Bank of India (RBI) introduced a significant relaxation for gold loan borrowers: the maximum Loan-to-Value (LTV) ratio for loans below ₹2.5 lakh was raised to 85%, up from the long-standing cap of 75%. Loans between ₹2.5 lakh and ₹5 lakh can now go up to 80%, while loans above ₹5 lakh continue under the 75% ceiling.

This change, aimed at improving access to credit for small-ticket borrowers, means effective April 2026, you can borrow more against the same quantity of gold. For households that rely on gold loans for urgent needs, whether it’s education fees, medical expenses, or working capital, this move has the potential to unlock greater liquidity at faster speeds.

At the same time, it also raises an important question: what does this 75–85% LTV range really mean for borrowers, and how should you approach gold loans in light of this shift?

What is LTV in Gold Loans?

The Loan-to-Value ratio, or LTV, is the percentage of your gold’s assessed value that a bank or NBFC will lend you. It ensures banks don’t expose themselves to excessive risk in case gold prices fall.

The formula is simple:

LTV (%) = (Loan Amount ÷ Assessed Value of Gold) × 100

For example, if the market value of the gold you pledge is ₹1,00,000 and the bank offers ₹75,000, the LTV is 75%. Importantly, banks consider factors like:

• Purity: 22K vs. 24K gold, with 22K being the standard.
• Prevailing market rate: As published by RBI or designated exchanges.
• Margin: A buffer to safeguard against price volatility.

This means borrowers never receive 100% of the gold’s value in cash; there’s always a cap for protection.

The Standard 75% LTV Rule (Before June 2025)

For years, RBI capped gold loan LTV at 75% for all borrowers. This was especially reinforced in 2021 when an earlier pandemic-era relaxation to 90% LTV was rolled back to maintain stability.

Why 75% Rule?

• Risk Protection: If gold prices dip by 10–15%, banks still hold adequate collateral.
• Encourages Discipline: Borrowers have a stake in repaying since their loan never equals full value.
• Systemic Stability: With gold loans forming a large share of NBFC portfolios, RBI ensured no sudden shocks from volatility.

For borrowers, this meant that no matter how much gold you pledged, you could only borrow up to three-fourths of its worth.

The New Relaxation: 80–85% for Small-Ticket Loans

In June 2025, RBI revised the LTV ratio for gold loans to make credit more accessible for smaller borrowers. The new slabs are:

This means if you pledge gold worth ₹2,00,000, you can borrow up to ₹1,70,000 instead of the earlier ₹1,50,000, a clear liquidity boost. This rule will be effective from April 2026.

What’s more, RBI also simplified norms for gold loans under ₹2.5 lakh:

• No mandatory credit appraisal (reduces paperwork, speeds up approvals).
• End-use monitoring applies only when loans are classified under priority sector lending.

The focus is on easing credit flow to households and small businesses, who often rely on gold loans for emergencies or working capital.

What This Means for Borrowers

For individuals and small businesses, the revised LTV ratios unlock more funds without pledging extra gold. This is particularly helpful for:

• Households managing emergencies such as hospital bills or school fees.
• Small traders or farmers needing working capital during seasonal cycles.
• Self-employed individuals who prefer collateral-backed loans over lengthy credit checks.

Borrowers will be able to access 10–15% more liquidity with the same ornaments, reducing their need to approach informal banks. The faster approval for sub-₹2.5 lakh loans also means quicker access to funds when time is critical.

However, there’s a trade-off: higher LTV increases the risk of default if gold prices decline. If you borrow at 85% and prices dip, banks may issue margin calls (asking you to pledge more gold or repay part of the loan). Failing that, there’s a greater risk of your gold being auctioned.

Risks and Precautions for Borrowers

While higher LTV looks attractive, it’s important to borrow responsibly. Key risks include:

• Volatility in Gold Prices: A 5–10% drop can push your LTV above the permissible limit, triggering repayment demands.
• Higher Interest Rates for High-LTV Loans: Banks often charge more for riskier, higher-ratio loans.
• Possibility of Losing Collateral: If you cannot meet obligations, banks have the right to sell your pledged gold.

Precautionary Steps:

• Borrow only as much as you truly need.
• Ask banks about interest rate differences between 75% and 85% LTV loans.
• Repay early if you have surplus funds to avoid price-driven shocks.