Gold may be at historic highs, but are we benefiting from it?

As gold touched Rs 1 lakh/per 10 grams – soaring by 30 per cent since last Akshay Tritiya, a glowing tribute to the biggest investors in yellow metal, the Indian housewives -who collectively hold a staggering 25,000 tonnes or 11% of the entire world’s reserve - came from none other than Uday Kotak who praised the astuteness with which they created household wealth over generations.

Though they now mutually hold gold worth an approximately $2.5 trillion, Indian households are hardly exploiting the economic value/productive potential of the precious metal, by availing formal credit against it. The share of gold loans continues to remain very low at 5.6% of the total household gold, as per a 2024 PwC report; still, an insignificant utilisation of such enormous wealth that could add tremendous value to the Indian GDP.

However, the versatility of the gold loans has widened in recent times, inducing many borrowers to realize the potential of it for short-term business finance or working capital, especially among SMEs and MSMEs, agriculture purposes, education fees, medical costs, home construction and paying off high debt loans. This is also expected to drive a steady and structured formalization of the gold loan sector.

Regulator refines the process, Govt eases access: Over the last few policy announcements, the regulator has also helped by bringing far more clarity to the gold loan practices. The latest revised regulations, to be effective April 1, 2026, raises the Loan-to-Value (LTV) ratio to 85% - from 75% - for loans of up to Rs 2.5 lakh per borrower, , offering more relief to small-ticket borrowers. This has made the credit availability easier for households and small businesses who don’t have to seek more expensive personal loans, anymore.

For Bullet loans, where the interest and principal are paid together at the end of the tenure, it will have to be done within a year’s time. Borrowers can pledge up to 1 kg of gold or silver ornaments while lenders will have to quickly return the ornaments on repayment - any delay will cost them Rs 5,000 per day as compensation. In case of a loss of the pledged precious metal, lenders would have to pay the compensation in full; for a borrower default, lenders must give clear and detailed communication - including in the local languages - before auctioning the pledge.

The central bank has clarified that the reserve price must be at least 90% of market value (85% after two failed auctions) with the surplus going back to the borrower within 7 working days. These new norms would further ensure greater uniformity, transparency, and borrower protection.

At a time when banks are choosy about extending unsecured loans, a secured credit option like the gold loan comes with several advantages. Borrowers can get quick liquidity and easier payment. The processes are simpler, and the approval is faster, in general. This makes gold loans particularly suited to the time-sensitive demands such as working capital loans, short-term business and personal needs and medical expenses among others.

Gold loans come with several advantages that set them apart from other short-term financing options:

· Minimal Documentation: Unlike personal loans or credit cards, gold loans require minimal paperwork, ensuring faster approvals. The approval comes almost instantly over the counter - with minimum credit check.

· Lower Interest Rates: Since it is backed by a collateral asset, Gold Loans attract lower interest rates and processing charges compared to business or personal loans. Consequently, you end up paying a lesser amount to service the loan, which makes it a better bet for short-term funding needs.

· No Credit Score Dependency: Since gold serves as collateral, borrowers with limited or poor credit histories can still access funds.

· Flexible Tenures: Borrowers can choose repayment terms that align with their financial goals, ranging from a few months to a year.

· Secure Custody: Gold pledged as collateral is securely stored by the lender until you’ve repaid the borrowed money. It ensures the safety of your valuable assets during the loan period. You can have peace of mind knowing that your prized possessions are in safe hands.

· High Loan-to-Value Ratios: At the current price, a borrower can get up to Rs 7,000 per gram of gold, allowing one to maximize the asset value. Since it is assumed that an Indian household has an average hold of at least 50 grams of gold, a secured credit line of Rs 3 -3.5 lakh is easy to obtain for any economic, medical, or other household purposes. Many borrowers do not realize this aspect and instead seek more expensive personal loans.

Bright future of gold loans: The robust growth of the gold loan industry so far reflects the broader economic trends in India, where gold remains a deeply ingrained part of cultural and financial practices. As the Indian economy continues to expand and consumer aspirations grow, the demand for short-term financing is likely to rise. Gold loans, with their unique blend of flexibility, accessibility, and affordability, are well-positioned to meet these evolving needs.

(Views are personal; the author is Business Head – Retail Agriculture & Gold Loans, Kotak Mahindra Bank)