Domestic gold-loan lenders are well protected against a potential correction in gold prices despite the higher regulatory loan-to-value (LTV) limit of 85 per cent for loans below ₹ 5,00,000, according to Crisil Ratings. The rating agency said strong risk-management practices, including regular monitoring of gold values, conservative lending ratios and timely auctions, have helped keep credit losses negligible. Its analysis showed lenders can recover the full principal amount even if gold prices decline sharply, keeping overall credit risk in the segment low.
Lenders have maintained asset quality through regular mark-to-market valuation of pledged gold, adequate LTV buffers and streamlined auction processes, helping keep credit costs in the segment negligible over the past decade, Crisil Ratings said.
The analysis stated that daily gold price movements over the past 25 years using a 90-day rolling window, which broadly reflects the time taken to complete the process from loan maturity to auction. The analysis found that the steepest fall in gold prices during such a period was around 20 per cent, while declines of more than 10 per cent were seen in only about 2 per cent of instances.
Crisil said ultimate credit costs for gold-loan lenders are influenced by three key factors — prepayments before scheduled maturity, LTV levels at disbursement and on a mark-to-market basis, and the effectiveness of risk-management measures such as frequent monitoring of LTVs and timely auctions during periods of sustained decline in gold prices.
Aparna Kirubakaran, director (financial sector), Crisil Ratings, said, “Our analysis of 12-month bullet repayment loans indicates repayment of around 90 per cent by the end of the tenure, primarily due to high pre-closures. Of the balance, more than 75 per cent of amounts remaining unpaid by the scheduled maturity are settled by the borrowers post contract maturity but prior to auction. This leaves a minuscule portion, typically less than 3 per cent of the gold loans disbursed, recovered through auction of the jewellery pledged as collateral.”
The rating agency noted that although regulations effective April 1, 2026 permit LTVs of up to 85 per cent for loans below ₹5,00,000, most lenders continue to operate at more conservative levels of 65-75 per cent, reflecting their preference for maintaining adequate buffers.
Its sensitivity analysis across different LTV scenarios indicated that lenders would be able to recover the full principal amount even under stressed conditions.
Deepanshu Singla, director (structured finance), Crisil Ratings, said, “Our empirical analysis indicates no loss on the principal amount, post-auction, at the portfolio level, with sensitivity analysis showing full principal recovery across LTV scenarios. Recovery of the accrued interest, the biggest challenge, benefits from buffers maintained by NBFCs and interest rebates offered to encourage borrowers to make periodic interest payments. This keeps the MTM LTV ratio in check. Besides, the Reserve Bank of India guidelines prescribe using the 30-day moving average gold price to arrive at the LTV, thus providing an additional shield against price volatility.”
According to Crisil Ratings, lenders are likely to continue relying on internal risk-management policies as they expand their gold-loan portfolios to capitalise on healthy demand. While higher permissible LTVs and potential volatility in gold prices warrant monitoring, the loss-given-default risk in the segment remains structurally low, it added.