Loan Against Sovereign Gold Bonds (SGB): How to Borrow Using RBI-Issued Gold Bonds

Sovereign Gold Bonds (SGBs) are government securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They are denominated in grams of gold and offer investors a way to own gold in paper form. Since SGBs are government-backed securities, they can also be used as collateral for loans.

Overview of Loan Against Sovereign Gold Bonds

SGBs held in demat form or in physical certificate form can be pledged with banks and NBFCs for loans. The RBI circular on SGB explicitly states that these bonds are eligible as collateral, similar to other government securities. This makes them one of the most credible and secure forms of collateral available to Indian investors.

Banks like SBI, HDFC Bank, ICICI Bank, and Kotak Mahindra Bank accept SGBs as collateral. NBFCs like Muthoot Finance have also started accepting SGBs in certain branches.

Interest Rates and LTV

Lender	LTV on SGB	Interest Rate (Per Annum)
SBI	Up to 75% of gold value equivalent	8.75% – 10.50%
HDFC Bank	Up to 75% of gold value equivalent	9.00% – 14.00%
ICICI Bank	Up to 75% of gold value equivalent	9.50% – 14.50%
Kotak Mahindra Bank	Up to 75% of gold value equivalent	9.50% – 13.00%

The loan amount is calculated based on the current gold price (as published by the IBJA – India Bullion and Jewellers Association) multiplied by the number of grams the SGB represents. The LTV cap of 75% applies just as it does for physical gold loans.

Key Advantage: SGB Interest During Loan Tenure

One of the most attractive features of a loan against SGB is that the bonds continue to earn their fixed interest rate (currently 2.5% per annum paid semi-annually) even while pledged. This effectively reduces your net borrowing cost. For example, if you borrow at 10% and earn 2.5% on the SGB, your net cost is approximately 7.5%.

Eligibility

• Indian residents, HUFs, trusts, universities, and charitable institutions holding SGBs
• SGBs can be held in demat form or as paper certificates issued by RBI
• NRIs are not eligible to invest in SGBs, so they cannot take SGB loans either
• Minimum SGB holding: as little as 1 gram (1 unit), though lenders may set higher minimums

Documents Required

• SGB certificate (physical) or demat account statement showing SGB holdings
• Aadhaar card and PAN card
• Bank account details
• Pledge/lien creation form
• Loan application form

Application Process

For Demat SGBs

Log in to the lender’s app or portal. Select Loan Against Securities and choose SGBs from your demat holdings. Authorise the pledge using your CDSL TPIN or NSDL OTP. The lender values the SGBs at the current gold price and sanctions the loan, typically within 1 to 2 working days.

For Physical SGB Certificates

Visit the bank branch with the original SGB certificate. The bank will assist in creating the pledge and registering it with RBI’s records. This process takes 3 to 7 working days due to the manual verification involved.

Frequently Asked Questions

Can I take a loan against SGB before its maturity?

Yes. SGBs have an 8-year maturity (with exit options at 5th, 6th, and 7th year), but you can pledge them for a loan at any time, even in the first few years of holding.

What happens to the semi-annual interest on SGBs while they are pledged?

The semi-annual interest (2.5% per annum) is paid directly to your registered bank account by the RBI, irrespective of whether the bonds are pledged. The interest payment is not withheld due to the pledge.

Is a loan against SGB better than a loan against physical gold?

For the same gold equivalent, both have the same LTV (75%). However, SGB loans have an advantage: you continue earning 2.5% annual interest on the bond even while pledged, which physical gold obviously does not provide.

Can I repay the SGB loan early without penalty?

Most banks allow prepayment of loans against SGBs without significant penalties. Check the specific loan agreement for prepayment terms and any applicable charges.