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A year after the RBI enabled silver-backed lending, the segment is struggling to gain momentum. Banks and NBFCs are proceeding with caution due to sharp price volatility and the difficulty of using silver as collateral compared to the established gold loan market. Investors should monitor how lenders manage these risks as the niche product attempts to scale.
What Happened
In early 2025, the Reserve Bank of India (RBI) introduced guidelines allowing banks and non-banking financial companies (NBFCs) to provide loans secured by silver. The goal was to provide borrowers with a new way to access liquidity using their silver assets. However, a year later, the market for silver loans has not seen significant growth. While institutions like Union Bank of India, IIFL Finance, and Bajaj Finance have introduced these products, the uptake remains slow, and lenders are adopting a guarded approach to expanding this business line.
The Challenge of Silver as Collateral
The primary hurdle for this segment is the nature of silver itself. Unlike gold, which is widely accepted as a store of value and an inflation hedge in Indian households, silver is largely driven by industrial demand, including usage in the electronics, electric vehicle, and solar energy sectors. When global manufacturing activity slows down, industrial demand for silver often declines, leading to sharp price corrections.
This volatility makes silver a riskier form of collateral for lenders. As of June 2026, silver prices have seen a significant correction, dropping nearly 50% from their late January highs. For a lender, this rapid decline in collateral value creates a significant risk. If the value of the silver held as security drops below the loan amount, the lender faces the prospect of credit loss unless they demand additional collateral or repayment from the borrower.
Comparing Silver and Gold Loans
The gold loan industry in India is highly mature, with well-established recovery and auction mechanisms. When a gold loan borrower defaults, lenders can easily auction the gold in a liquid market to recover their dues. This is not yet the case for silver. The market for liquidating or auctioning silver is less efficient, and purity checks for silver are considered more complex and costly than those for gold. This impacts the unit economics for lenders, who must weigh the cost of storage, verification, and recovery against the potentially thinner margins compared to traditional gold loans.
Risks for Lenders
Lenders are currently applying stringent filters to this new product category. While the RBI has permitted a loan-to-value (LTV) ratio of up to 85% for loans up to ₹2.5 lakh, actual practices in the market suggest that lenders are often keeping LTVs much lower to protect themselves against price swings. Furthermore, interest rates for silver loans are reportedly higher, often ranging between 10% and 30%, compared to the 7% to 15% seen in the gold loan segment. This price gap reflects the added risk premium banks must charge to cover the volatility of the asset.
What Investors Should Track
For investors following banks and NBFCs involved in this space, the key monitorable is the growth and quality of the silver loan book. Investors should watch for management commentary regarding the scale of these operations in quarterly earnings reports. If a lender begins to aggressively expand its silver loan portfolio, it could signal higher risk tolerance or a change in collateral management strategy. Conversely, a continued slow or cautious approach suggests that the product remains a small, niche experiment rather than a core revenue driver. Tracking how lenders handle potential defaults and the recovery process in this segment will also be crucial for assessing the long-term viability of silver-backed lending.
