More Stories

Informist, Friday, Dec. 5, 2025

 

MUMBAI – The Reserve Bank of India's move to allow silver as collateral for bank loans could prove to be a game changer for rural communities. The move will help individuals pledge silver assets to access credit through banks, non-banking financial companies, and housing finance firms, research consultancy Metals Focus said.

 

The RBI recently allowed banks to extend loans secured against silver ornaments and coins, starting Apr. 1, 2026. This could unlock India's large silver holdings in households, expand access to formal credit, and officially establish silver as a widely accepted collateral asset, Metals Focus said in a release on Thursday.

 

Traditionally, gold has been used as a backup source of funds, especially in rural areas, where it is often pledged to access loans. While gold is widely leveraged, silver has also been a key asset for rural households, particularly among lower and middle-income households, due to its affordability. India is the world's largest consumer of silver jewellery and utensils, with much of it bought by rural and lower-income communities.

 

The large amount of gold and silver owned in rural India highlights the need to understand the financial pressures these communities face. "The latest survey by the National Bank for Agriculture and Rural Development shows rising expenses leave rural households with a monthly surplus of only Rs. 1,500–Rs. 2,000 ($16–$22) for savings and debt servicing. At the same time, the proportion of indebted households has climbed from 47% to 52%, increasing leverage on already thin cash flows," the research consultancy said.

 

The RBI's new rules aim to standardise silver-backed lending with clear loan-to-value ratios and eligibility thresholds. Also, new weight limits have been set, allowing borrowers to pledge up to 1 kilogram of gold ornaments and 10 kilograms of silver ornaments, along with 50 grams of gold coins and 500 grams of silver coins. These restrictions are meant to limit the risk for lenders and make managing collateral easier. However, bullion and financial products such as exchange traded funds and mutual funds cannot be used as collateral, it pointed out.

 

Silver prices have been on a rising trajectory, frequently breaking new records, and experts believe the trend is not over yet. The price rise boosts the collateral value of silver, allowing borrowers to secure higher loan amounts. However, silver's price volatility poses a risk for lenders, as a sharp decline could reduce their margin of safety if revaluations aren't enforced, the release said.

 

Silver loans also face practical challenges, such as larger volumes needed for collateral, which increases storage and insurance costs. Its lower value-to-weight ratio requires significantly large pledged volumes, raising storage, transport, and insurance costs for lenders. Silver purity risk and the prevalence of non-hallmarked jewellery remain key barriers. These factors are likely to constrain disbursement volumes and encourage lenders to adopt more conservative loan-to-value ratios.

 

While silver-backed lending has existed informally, this is the first time it's been officially recognised. This will complement, not replace, gold loans and could help rural households, especially first-time borrowers, access formal finance, it said. Over time, standardisation and mandatory hallmarking could bring more silver into the regulated system, unlocking its untapped potential, the consultancy said.  End

 

Reported by Reshma Ravi

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.