LTV in Gold Loan Explained

The Reserve Bank of India has fixed the maximum loan-to-value ratio (LTV) of gold loans in the range of 75% to 85%. The maximum loan-to-value ratio (LTV) for loans up to ₹2.5 lakh is 85%, the maximum LTV for loans between ₹2.5 lakh and ₹5 lakh is 80%, and the maximum LTV for loans above ₹5 lakh is 75%. To calculate the loan-to-value ratio (LTV), multiply the loan amount with the appraised gold value and multiply the result by 100.

LTV ratio is the loan-to-value ratio. It is a measure that compares the value of the gold item kept as collateral to the amount of gold loan disbursed. In plain terms, it's the percentage of your gold's current market value that a lender is willing to disburse as a loan.

The formula: LTV (%) = (Loan Amount ÷ Market Value of Gold) × 100. For example, if your gold is valued at ₹1,00,000 and the lender offers ₹75,000, the LTV is 75%.

Gold loans with a higher LTV ratio are considered to be riskier and result in a higher gold loan interest rate. You will have more cash if the LTV is higher, but the lender is taking on more risk if gold prices drop or you don't pay back the loan. This is why RBI limits how high it can go.

Until 2025, the Reserve Bank of India's directive on gold loans was straightforward: the maximum loan-to-value (LTV) ratio could not exceed 75%, regardless of the loan amount. The simple rule applied to all cases. The lender could lend a maximum of 75% of the value of gold, irrespective of whether the borrower had pledged gold worth ₹20,000 against a small personal loan or ₹20 lakh against a bigger business need. While easy to implement, the one-size-fits-all rule meant that small borrowers, who are often dependent on gold loans for urgent or smaller cash needs, were subjected to the same restrictive ceiling as those availing much bigger loans.

The RBI has now dispensed with this flat rule, and has introduced a tiered structure from April 1, 2026, as per its Lending Against Gold and Silver Collateral Directions. The stated objective of this change was to achieve a better balance between the protection of larger, high-value loans, which are more risky for lenders and the financial system at large, and facilitating small borrowers, who generally need small amounts of gold for their day-to-day requirements.

Under the new framework, the maximum LTV a lender can offer now depends on the loan amount, following these slabs:

In the real world, this means that a person who borrows a small amount of gold, for example ₹1.5 lakh, can now get up to 85% of its appraised value, which is an increase from the previous cap of 75%. This provides them with a significant increase in cash against the same collateral. It is important to note that larger borrowers are still subject to the original 75% ceiling, which helps to maintain the risk buffer for high-value lending.

It is important to note that these slabs are applicable only for the appraised value of gold of 18 karats purity and above. Gold with lower purity may have a different valuation or may not be included at all. Further, while these slabs represent the maximum permissible loan to value ratio, individual lenders have the discretion to offer a lower LTV depending on their own risk assessment, the borrower’s credit profile or internal lending policies.

NBFCs and scheduled commercial banks both make use of the tiered LTV framework that the RBI has developed. At this time, there is no distinct lower ceiling that is applicable to one category of lender in comparison to another. Both categories of lenders are subject to the same maximum limits, which are as follows: 85% apply to loans up to ₹2.5 lakh, 80% apply to loans between ₹2.5 lakh and ₹5 lakh, and 75% apply to loans that are greater than ₹5 lakh. Unlike the perception that some borrowers have of the system, non-bank financial companies (NBFCs) are believed to offer terms that are more flexible or generous than banks. However, the current directive from the RBI states that this is not the case vis-à-vis the LTV ceiling.

However, individual NBFCs and banks may have their own internal risk policies which could lead to an effective LTV offer which is lower than the maximum allowed by the RBI for a particular loan. The exact percentage that is offered can be influenced by a number of factors including the lender’s assessment of the purity of the gold, their internal risk appetite, the borrower’s repayment history and even the volatility of the gold price at the present current moment. However, while the RBI slab sets the maximum amount, it doesn’t guarantee that every lender will offer you that amount.

Make sure you verify the exact loan-to-value ratio that your particular lender is providing before you pledge your gold. Instead of assuming that the RBI ceiling will automatically apply, it is a good idea to check. You can instantly compare the terms of two or three lenders (banks and NBFCs) and see who is offering the best terms for the loan amount you are applying for.

In spite of the fact that determining the maximum amount of your gold loan is a straightforward process that consists of four steps, there are a few details that can catch borrowers off guard. Among these particulars is the gold price that the lender actually employs in their calculations.

• Step 1: First of all, you need to know the weight of your gold in grams. This is the aggregate weight of the gold ornaments or coins you are pawning and is generally measured on the lender’s standard scale at the time of assessment.
• Step 2: Identify the purity (karat) and convert it to fineness. Fineness expresses purity as a percentage of pure gold. For example, 22K gold is 91.6% pure (22/24), while 18K gold is 75% pure (18/24). This conversion matters because lenders value your gold based on its actual gold content, not its gross weight.
• Step 3: Multiply weight × fineness × current market price per gram to arrive at the appraised value of your gold. This is the baseline figure the lender uses before applying any LTV percentage.
• Step 4: Apply the applicable LTV percentage to the appraised value to get your maximum loan amount.

In doing this calculation lenders typically use the average gold price over the prior thirty days, not the spot price on the day you apply for the loan. This is a detail that often catches people out. This indicates that the amount of your loan may be slightly different from what you would anticipate based on the headline gold rate for that particular day.

Example A: 20g of 22K gold, market price ₹7,000/gram, at 75% LTV

• Appraised value: 20g × 91.6% × ₹7,000 = ₹1,28,240
• Loan amount (75% LTV): 75% × ₹1,28,240 = ₹96,180

Worth noting: at this appraised value, the resulting loan (₹96,180) actually falls under the "up to ₹2.5 lakh" slab, which would qualify for 85% LTV under the current framework, not 75%. This example uses 75% purely to illustrate the arithmetic against the pre-2025 flat rule. See Example B for how the current tiered slab plays out on a similarly sized loan.

Example B: 10g of 18K gold, market price ₹7,000/gram, at 85% LTV (loan under ₹2.5 lakh)

• Appraised value: 10g × 75% × ₹7,000 = ₹52,500
• Loan amount (85% LTV): 85% × ₹52,500 = ₹44,625

As a result of the lower fineness of 18K gold, which is 75%, as opposed to the higher fineness of 22K gold, which is 91.6%, the appraised value of the same weight of 18K gold in comparison to 22K gold is lower. On the other hand, because the loan that was obtained is comfortably less than ₹2.5 lakh, it is eligible for the higher 85% slab, which partially compensates for the impact that the lower purity percentage has on the total amount of the loan that you receive.

The loan-to-value ratio that is assigned to you is contingent upon a number of factors; it is not always the same number for all borrowers. This is true even in the tiered system that was created by the Reserve Bank of India (RBI).

• Gold purity: A higher karat gold carries a higher fineness percentage, which directly produces a higher appraised value for the same physical weight. This happens because higher karat gold is more refined. Because it has more real gold, a 22K chain will appraise higher than an 18K chain of the same weight. This higher appraised value can lead to a bigger loan amount, even if the LTV percentage stays the same.
• The current market price: Lenders base the value of gold on the average price over the last thirty days, not the spot price on the day you walk into the loan office. So, the loan amount you receive may be a little more or less than what you might expect from a quick mental calculation based on the headline gold rate for that day.
• Loan amount slab: Your maximum allowable LTV depends on which of the three RBI slabs your loan falls into: 85% up to ₹2.5 lakh, 80% between ₹2.5 lakh and ₹5 lakh, and 75% above ₹5 lakh. Which slab you land in is pretty much determined by how much your gold is worth.
• Internal policy of lender: Even within the same RBI slab, individual banks and NBFCs may choose to offer an LTV lesser than the maximum allowed, depending on their internal risk management, underwriting criteria or the profile of the borrower.
• Type of gold: Not all gold collateral is treated equally. Gold coins issued by banks are generally accepted without issue, but foreign coins, gold bars, or jewellery with heavy stone-work may not qualify as collateral at every lender, or may be valued differently after deducting non-gold weight.

If the price of gold drops significantly after your loan has been disbursed, it is possible that your outstanding loan will end up exceeding the permissible loan-to-value ratio (LTV) threshold on the revised, lower gold value. This is because the LTV threshold is based on the revised gold value. The situation is referred to as a margin shortfall, which is the term used to describe it.

Here's how it plays out, continuing Example A above:

• Original loan: ₹96,180 against gold appraised at ₹1,28,240 (75% LTV at disbursal)
• The price of gold drops 10%, to ₹6,300/gram. Its new value is ₹1,15,416.
• New LTV: ₹96,180 ÷ ₹1,15,416 = 83.3%, which is more than the 75% limit.
• To get the 75% LTV back, the loan amount needs to drop to ₹86,562, which means a repayment of about ₹9,600.

In practice, lenders typically ask you to either repay a portion of the loan or pledge additional gold to bring the ratio back within the permitted limit. RBI guidelines for gold loan recovery say that banks should have a due diligence process in place for engaging with recovery agents, banks should give sufficient notice to borrowers before they take possession of their gold and provide them enough time to repay the loan before auctioning their gold items. It's worth keeping an eye on gold prices during your loan tenure and maintaining a small buffer where possible, so a routine price dip doesn't turn into a scramble.

Here are some tips to get the most from your gold loan LTV. Let us check them out in details:

• Pledge higher-purity gold. If you have a choice of items to pledge, 22K or 24K gold maximises your appraised value compared to 18K for the same weight, since fineness directly drives the valuation. Where possible, choose your purest gold items to pledge first.
• Use when the price of gold is pretty high. Even though lenders use the average price from the last 30 days instead of the spot rate for the day, timing is still important. A higher average base valuation within that window can make your loan amount more likely, even if you can't time the spot price perfectly.
• If you can, try to keep the loan amount to less than ₹2.5 lakh. This will get you into the 85% LTV slab instead of the lower ones that are available for bigger loans. If your gold value sits just above this threshold, consider whether pledging slightly less gold to stay within the slab works better for your needs.
• Get a purity test done ahead of time. An independent jeweler or certified appraiser can do a professional check before you go to the branch. This will help you avoid surprises in the lender's own appraisal and give you a standard to compare against.
• Get the best LTV from each lender and compare Remember that the RBI number is only indicative and not a guarantee. Some lenders may offer lower due to their own policies. You can find big differences in what you're offered by two or three banks and NBFCs by quickly comparing them.

If you're weighing your options, Aditya Birla Capital's gold loan offering is worth comparing against the RBI maximums above before you decide where to pledge your gold.

Also Read: Here's how you can buy gold digitally