OPINION | Vault Matters: RBI’s experiment with loans against silver

Silver

October 1, 2025 will be remembered by the banking industry as the day of real liberalization. Whether it was increasing limits on loan against securities, formally introducing loan against silver as a business for lenders, or opening up acquisition finance for banks, the day was lauded by every player in the industry as though it was going to result in ballooning of loan books by just opening up these sectors.

Of the three, let’s focus on loan against silver and why it is the biggest experiment by RBI in recent years.

Regulatory wariness about commodities

Indian banking regulator has never fancied commodities.

Which is why, the post on X which went viral towards the end of December on how a US bank could go belly up because it wasn’t able to cover its position on silver trades, can never happen in India.

Globally, in every five-to-seven-year cycle, the value of one or the other commodity has recorded a meltdown and aluminium and copper stand out as perfect examples.

But with all the good news around silver and how it has become the new gold, forget the Indian public, did it lure the RBI too?

Indian households love silver

After all, India is globally the largest hoarder of silver at the household level. Most middle-class families might still have at least one of those thick 1-kg sliver plate used by a grandfather locked up in their houses and not mention, for the rich, silver is still their essential cutlery.

While the norms which allow lending has capped the loan to value for silver at 85 percent, just as the case with gold, the guidelines don’t seem to factor the finer differences between the precious metals. And the differences are many.

Here’s why it’s quite tough to comprehend such a product had to be formally introduced.

Lack of standards

Firstly, it has taken seven years for banks and NBFCs to start using gadgets to test the purity of gold. Yet, at the time of auction there are still doubts. With nothing as defined purity standards or grades in silver, we may have simply opened up the floodgates for more confusion than clarity.

When quality related aspects can be subjective, which was the case when the RBI curbed gold loans back in the early 2010s, it can result in a pile of bad loans rather than create a good asset class. While in 2016 RBI formally opened the sector, gold loans, though they might be growing exponentially, are still in test phase.

Cost of doing business

Underwriting isn’t the only grey area.

What about the cost of doing business – storage, preservation and auction. Unlike gold, which can easily glitter, silver suffers from oxidation. Restoring the shine not only involves cost, but also results in a marginal reduction in grammage or the underlying weight of ornament. This aspect can pose as an addition challenge to underwriting the loan.

Another important aspect is the price volatility.

Silver historically is an unpredictable metal – for year it sticks to range and suddenly when industrial demand picks up, its price increases. We saw that during the period of ‘chips shortage’ in 2023–24.

Predictability isn’t so much the issue with gold, which is guided by geopolitical factors. Stock of yellow metal held by central banks continues to be an important factor in deciding how much currency to print across the globe.

Therefore, factors influencing the price movement of gold and silver are very different.

With no global successful case studies on silver loans, RBI, maybe trying to create a product category. Would it be worth the cost?