Gold Bullion and Gold Loans: What the Primary Gold Rule Means
Table of Contents
Some families buy gold as bars or biscuits from a dealer and keep them aside as savings. Years later, when cash is needed, they wonder whether that bullion can be pledged in the same way as jewellery. Under the current rules, the answer is generally no.
This blog explains where gold bullion as collateral for a gold loan stands in India. A gold loan is a secured loan obtained on eligible gold articles as collateral from a licensed financial institution. The following sections discuss the concept of primary gold and the reason why bullion is excluded.
What Counts as Primary Gold
As per the RBI (Lending Against Gold & Silver Collateral) Directions, 2025, introduced by authorized institutions from April 2026, there is no ambiguity about it. An eligible collateral would include jewelry or ornaments or coins made of gold or silver. Gold in any other form is called primary gold.
Bars, biscuits and raw bullion fall in this second group. Purity does not move them across the line, so a certified bar remains primary gold. The idea of using gold bullion as loan collateral therefore runs into a definition and not a lender's preference.
Why the Directions Exclude Bullion
The RBI has restricted lending against primary gold for a long time. Its stated reasons are macro-prudential concerns (risks to the wider financial system) and the speculative, non-productive nature of gold held as bullion. The aim is to keep gold loans linked to real borrowing needs rather than to bets on gold prices.
The amendment of 29 September 2025 restated this position. Regulated lenders are not permitted to lend against primary gold, or to fund the purchase of gold in any form. A request for a gold loan against gold bullion falls outside the eligible categories for this reason.
The Narrow Exception for Manufacturing Use
The amended directions carry one limited exception. Scheduled commercial banks and Tier 3 or Tier 4 urban co-operative banks may give need-based working capital finance. This is meant for borrowers who use gold as a raw material or input, such as jewellery makers and industrial units.
In such cases, the gold may also be accepted as security. The bank is expected to ensure that the borrower does not hold gold for investment or speculation. This is business credit and is not the same as a personal gold loan. Outside this route, the general position on gold bullion as collateral for a gold loan stays as it is.
Documents Required for a Gold Loan
Since gold bullion as collateral for a gold loan is generally not accepted, the documents below relate to eligible jewellery or coins.
Identity Proof
An officially valid document (an identity document recognised under KYC rules), such as an Aadhaar card, passport or voter ID, is commonly presented.
Address Proof
Address proof is generally asked for where the identity document does not show the current address.
PAN Details
The lender generally asks for the PAN at the KYC stage. Alternative documents may be considered in certain cases, as per lender policy.
The Gold Items
The ornaments or eligible coins are brought in for valuation. The lender may request more documents depending on its policy, the loan amount and the assessment involved.
Eligibility and Valuation
Age, residency and ownership conditions depend on applicable regulations and lender policy. Where its process requires, the lender may ask for a declaration or other records on ownership of the ornaments.
The directions require a detailed credit assessment, including repayment capacity, where a borrower's total gold and silver loans are above ₹2.5 lakh. At or below ₹2.5 lakh this is not required, though lenders may apply their own checks. Credit history may be looked at under the lender's internal policy.
Eligible jewellery is weighed and goes through a purity check. Stones, lac and other non-gold parts are deducted to arrive at net gold weight. The value is then taken at the lower of the previous day's closing price and the 30-day average, at the rate for the purity found. These prices are published by IBJA or a SEBI-regulated exchange.
Under the directions, the caps are 1 kg for gold ornaments and 50 grams for gold coins per borrower. The LTV limit (loan-to-value, the share of value that can be lent) is 85% up to ₹2.5 lakh. It is 80% above ₹2.5 lakh up to ₹5 lakh, and 75% above ₹5 lakh.
Application Process
- A regulated lender is approached with eligible jewellery or coins and the KYC set.
- Identity and address details are verified, and the items are listed.
- The lender's valuer tests and weighs each item in the borrower's presence, and a valuation certificate is generally issued.
- If the file is cleared, the lender may share an offer listing the amount, applicable interest rate, charges and repayment terms.
- Following acceptance and signing, disbursal follows once verification and the remaining formalities are complete.
Under the directions, pledged items are to be returned within seven working days after the loan is fully repaid. If the lender is responsible for a delay, the borrower is compensated at ₹5,000 per day.
IIFL Finance Support for Gold Loan Applicants
IIFL Finance may offer gold loans against eligible jewellery and coins, depending on product availability, eligibility, the assessment of the gold and prevailing regulatory requirements. Families having jewelry or qualifying coins in addition to gold would find the above information useful. The interest rate and charges are dependent upon various factors including the product and lending institution.
Under relevant guidelines and policies of the lending institution, the loan amount can be used for:
- Surgery or hospital deposits for a family member
- School admission and uniform costs
- Repairs to a shop's equipment
- Expenses for a family ceremony
Pledging is not a sale of the gold. Ownership generally continues with the borrower, subject to repayment and the terms agreed with the lender.
Conclusion
The RBI directions define eligible collateral as gold jewellery, ornaments and coins. Bars, biscuits and other bullion count as primary gold, whatever their purity. That is why gold bullion as collateral for a gold loan is generally not accepted by regulated lenders. A narrow working capital exception exists for manufacturers that use gold as a raw material, through specified banks. For eligible items, the value rests on net gold content, the benchmark price and the LTV slab.
A gold loan may give access to money against eligible gold, with ownership of the gold kept by the borrower, subject to repayment. The valuation, disclosures and safekeeping of pledged items follow applicable regulations and lender policy.
Frequently Asked Questions
Can an individual pledge gold bullion for an ordinary gold loan?
No, not with a regulated lender. Bars, biscuits and other bullion are primary gold under the RBI directions. Personal bars kept as savings also fall outside the manufacturing exception.
Do bars and biscuits count as primary gold?
Yes. Under the directions, gold that is not jewellery, an ornament or a coin is primary gold. Bars and biscuits are the most common examples, and their purity does not change this.
Are eligible gold coins treated the same as bullion bars?
No. Coins fall in the eligible category, while bars are primary gold. Gold coins are capped at 50 grams per borrower under the directions, and each coin still goes through the lender's purity check.
Does the working-capital exception apply to every bullion owner?
No. It covers need-based working capital from scheduled commercial banks and Tier 3 or Tier 4 urban co-operative banks. The borrower needs to use gold as a raw material in manufacturing or industrial processing.
Can a lender waive the bullion restriction after checking purity?
No. The restriction comes from the RBI directions, and a purity test does not change the form of the gold. A lender's own acceptance process works within that rule.
Does the same rule apply to silver bars?
Yes. The directions treat silver bars and bullion as primary silver, which is outside eligible collateral. Silver ornaments and eligible silver coins are assessed under their own caps.
Disclaimer: The content here is for general information and is not an offer to lend. Any loan and its terms remain subject to RBI rules, KYC, purity and weight of the gold, borrower assessment and IIFL Finance policy.
Disclaimer : The information in this blog is for general purposes only and may change without notice. It does not constitute legal, tax, or financial advice. Readers should seek professional guidance and make decisions at their own discretion. IIFL Finance is not liable for any reliance on this content. Read more
