When a borrower defaults on a gold loan, the lender can auction the pledged jewellery to recover its dues. But borrowers still have options to reclaim their gold, including repaying the loan before the auction begins.
Pay before the auction
The simplest way to recover your gold is to repay the full outstanding amount before the auction starts. Auction notices generally allow borrowers to reclaim their jewellery by closing or regularising the loan account before the sale.
Visit the branch where you took the loan and ask for an updated statement of dues. The amount mentioned in the auction notice may have been calculated on an earlier date. Since interest continues to accrue, the final amount payable could be higher.
You may also have to pay a share of the expenses incurred on publishing the notice and conducting the auction.
Under the RBI's Lending Against Gold and Silver Collateral Directions, 2025, lenders must return pledged gold on the day the loan is fully repaid. If they fail to do so, they must return it within seven working days.
If the delay is attributable to the lender, it must compensate the borrower Rs 5,000 for every day beyond the seven-working-day limit.
What if you cannot repay the full amount?
If you cannot arrange the entire amount, contact the lending branch before the auction date. Ask whether you can regularise the account by paying part of the outstanding dues.
The RBI permits renewal or top-up of a gold loan only if the account is classified as standard and the loan remains within the prescribed loan-to-value (LTV) ratio.
For loans that require repayment of the entire amount at maturity, known as bullet-repayment loans, renewal is allowed only after the accrued interest has been paid.
If the loan has already reached the auction stage, it may no longer qualify for renewal. Ask the lender in writing whether the account can still be renewed. Renewal may allow you to extend the tenure after the lender reassesses the pledged gold and you clear the pending interest, subject to the applicable rules and the lender's approval.
If the auction goes ahead
Even if the lender proceeds with the auction, RBI rules provide safeguards for borrowers.
The lender must give you adequate notice and an opportunity to repay before starting the auction process. It must also keep a record of the notice and its acknowledgement.
The lender can proceed without delivering the notice to you only if it cannot trace you despite making its best efforts and issuing a public notice. In such cases, at least one month must pass after the public notice before the auction can proceed.
The auction must be advertised in at least two newspapers — one in the regional language and another in a national daily.
The first auction must be conducted physically in the district where the lending branch is located. Only if it fails can the lender move the auction to an adjoining district or conduct it online.
The reserve price, or minimum auction price, must be at least 90% of the gold's current value. This floor falls to 85% after two failed auctions.
The value is based on the lower of the average gold price over the preceding 30 days and the closing price on the previous day, as published by the India Bullion and Jewellers Association or a SEBI-regulated exchange, as applicable. Stones and gems embedded in the jewellery are excluded.
What happens after the sale?
After the auction, the lender must inform you of the sale price and the amount adjusted against your outstanding dues. If the proceeds exceed what you owe, the lender must refund the surplus within seven working days of receiving the full auction proceeds. Keep your bank details updated to avoid delays.
If the proceeds do not cover the loan, the lender can seek recovery of the balance under the loan agreement. If the borrower has died, the applicable recovery and settlement conditions generally extend to the nominee or legal heirs.
