Gold price correction: Lenders seek more collateral if LTV is breached

Borrowers asked to pledge additional gold or repay loans as lenders monitor LTV breaches amid price correction and rising volatility in the gold market

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 prices have corrected by 17 per cent from their peak of ₹1.74 lakh per 10 grams on January 29 to ₹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.

 

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 ₹16.2 trillion as on December 31, 2025, growing 44.1 per cent year-on-year (Y-o-Y).

 

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 ₹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.