Paul Merchants Finance Pvt Ltd (PMFPL), a diversified Non-Banking Financial Company (NBFC) from the Paul Merchants Group, has launched a Loan Against Silver product and become the first NBFC in India to set up exclusive branches dedicated to silver loans. The company has started its silver loan operations from the Union Territory of Chandigarh and plans to expand to other locations in a phased manner. Under this facility, eligible customers can avail loans ranging from ₹2,000 to ₹15 lakh against their silver assets.
What Is a Silver Loan?
A silver loan, also called a loan against silver, is a secured loan in which a borrower pledges silver jewellery, ornaments or coins to a lender and receives money against their value. The lender keeps the pledged silver as collateral security and returns it once the borrower repays the principal along with interest. It works on the same principle as a gold loan, which has long been a popular source of quick credit in India.
The concept is familiar to most households, but until recently it operated almost entirely outside the formal banking system. For years, families holding silver in semi-urban and rural India had only two ways to raise money against it: sell the metal outright, or borrow from local financiers at unfavourable terms. The unorganised sector dominated this business, with little transparency in valuation or interest charges.
A silver loan is different from a loan against silver exchange-traded funds (ETFs) or mutual funds. Under the current framework, only physical silver in the form of jewellery, ornaments and approved coins qualifies as eligible collateral. Silver bars and bullion, industrial silver and silver-backed financial products do not fall under these lending rules.
Why Is Silver Lending Possible Now?
The launch follows a major policy shift by the Reserve Bank of India (RBI), which formalised silver as eligible loan collateral for the first time. In June 2025, the RBI issued the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025, a comprehensive framework covering loans secured by both gold and silver.
Before this, RBI regulations allowed regulated lenders to accept only gold as collateral in a harmonised manner. Silver lending had remained fragmented, with older circulars touching on it but no unified, principle-based framework. The 2025 Directions consolidated around three dozen earlier circulars on gold and silver lending into one document and, crucially, extended the standard secured-lending framework to silver jewellery, ornaments and coins. All regulated entities were asked to comply with the Directions by April 1, 2026.
The Directions apply to a wide set of lenders, including commercial banks, co-operative banks, Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs). By bringing silver into the formal lending ecosystem, the RBI has created the regulatory space that companies such as Paul Merchants Finance are now stepping into.
Analogy · Silver as a Locker Key Expand analogy
Think of a silver loan like handing over a locker key while keeping the locker itself intact. You pledge the silver jewellery sitting idle in your house and get cash in return. Once you repay the loan, you get the jewellery back. The asset stays yours; you are only using its value temporarily.
How the Silver Loan Works
Eligibility and Loan Amount
The Paul Merchants Finance product is aimed at individuals, proprietors and MSMEs (Micro, Small and Medium Enterprises) who need liquidity for personal, business or other legitimate purposes. Borrowers can secure loans ranging from ₹2,000 to ₹15 lakh against eligible silver jewellery, ornaments and approved silver coins, subject to the company’s lending policies and RBI requirements.
Valuation of Silver
The value of the pledged silver is not based on its weight alone. Lenders value the collateral on the basis of its purity and intrinsic metal content. According to the RBI Directions, the reference price is the lower of the average closing price of silver over the preceding 30 days or the closing price of the preceding day, as published by the India Bullion and Jewellers Association (IBJA) or by a SEBI-regulated commodity exchange. The value of stones, gems or embellishments is not added while arriving at the loan amount.
Loan-to-Value Ratio
The loan-to-value (LTV) ratio decides how much money a borrower can get against the assessed value of the silver. Under the RBI framework, the maximum LTV is tiered according to the total loan amount:
| Total Loan Amount | Maximum LTV Ratio |
|---|---|
| Up to ₹2.5 lakh | 85 per cent |
| Above ₹2.5 lakh and up to ₹5 lakh | 80 per cent |
| Above ₹5 lakh | 75 per cent |
The LTV ratio must be maintained throughout the tenure of the loan, not just at the time of sanction. So, if the assessed value of a borrower’s silver is ₹1 lakh, they can receive up to ₹85,000 under a small-ticket loan, subject to the lender’s policy.
Weight Limits and Collateral Rules
The Directions also cap the amount of collateral a single borrower can pledge. A borrower can pledge up to 10 kilograms of silver ornaments and up to 500 grams of silver coins in aggregate across all loans. For comparison, the limits for gold are 1 kilogram of ornaments and 50 grams of coins.
The RBI has placed restrictions on the end-use of such loans as well. Lenders cannot extend loans for the purchase of gold in any form, or for buying financial assets backed by gold. Loans against primary silver, meaning silver in any form other than jewellery, ornaments and coins, are also not permitted.
Repayment and Collateral Return
Silver loans are typically short-term loans, often structured as bullet repayment loans, where both the principal and the interest fall due at maturity. In such cases, the accrued interest is factored into the LTV calculation. The borrower’s pledged silver must be returned on the same day of full repayment, and in no case later than seven working days. If the delay in returning the collateral is the lender’s fault, the lender must compensate the borrower at the rate of ₹5,000 per day of delay.
Paul Merchants Finance: The First Mover
Paul Merchants Finance Pvt Ltd (PMFPL) is a diversified NBFC registered with the RBI and a wholly-owned subsidiary of Paul Merchants Ltd, a Chandigarh-headquartered conglomerate founded by Mr S. Paul. The parent group has been active since 1984 in businesses such as foreign exchange, money transfer, travel and financial services. The group’s finance arm was founded in 2010 and built a sizeable gold loan business over the years, before that portfolio was acquired by L&T Finance in June 2025 in a deal covering around 130 branches and a gold loan book of about ₹1,350 crore.
With the silver loan initiative, PMFPL is now pivoting its secured lending focus to silver. Besides silver loans, its existing portfolio includes secured MSME loans, loans against property, loans against shares and corporate loans. The company has chosen to enter the space by establishing exclusive silver loan branches, a first for any NBFC in India, rather than merely adding silver as another product in existing branches.
Operations have begun from Chandigarh, the shared capital of Punjab and Haryana and an important Union Territory. The company has indicated that it will expand the product to other locations in a phased manner, with more dedicated silver loan branches being set up. Speaking on the launch, group chairman Mr S. Paul said that silver has always held a strong place in Indian households, particularly as a form of savings, and that the RBI’s decision to permit lending against silver has created an opportunity to bring this segment into the formal financial ecosystem.
Why Silver Is a Big Opportunity for India
The Poor Man’s Gold
Silver is often called the poor man’s gold in India because it is widely held by households across income groups, especially in semi-urban and rural areas. Silver is used in ornaments, wedding utensils, temple items and decorative pieces, and is passed down across generations as a store of value. India is one of the largest consumers of silver in the world, and its households hold a huge quantity of the metal by weight, far more than gold in physical terms.
This widespread ownership has, until now, been of little use in a financial emergency. Silver assets were effectively dormant wealth because they could not be used to raise formal credit. The RBI’s policy change and the entry of NBFCs into silver lending are expected to convert this idle household wealth into a productive financial asset.
Bringing the Unorganised Sector Into the Fold
Historically, loans against silver were provided mostly by local moneylenders and informal financiers, often at opaque terms. The new framework brings transparency, standardised valuation, documented agreements and regulated recovery procedures to this segment. Customers gain a more organised and trustworthy avenue to raise credit against assets they already own, while lenders get access to a large, largely untapped collateral base.
A New Category in Secured Lending
The silver loan business is expected to grow into a meaningful category in small-ticket secured credit. Because silver has a lower value per gram than gold, silver loans are naturally suited to small-ticket borrowing, which fits the needs of individuals, small traders and MSMEs looking for quick, short-term funding. Industry observers expect silver loan interest rates to carry a small risk premium over gold loans, reflecting silver’s higher price volatility, but the product still offers a cheaper and safer option than unsecured personal loans for many borrowers.
Gold Loan vs Silver Loan: Key Differences
| Parameter | Gold Loan | Silver Loan |
|---|---|---|
| Collateral | Gold jewellery and coins | Silver jewellery, ornaments and coins |
| Per-borrower weight limit (ornaments) | 1 kilogram | 10 kilograms |
| Per-borrower weight limit (coins) | 50 grams | 500 grams |
| Typical ticket size | Small to large | Mainly small-ticket |
| Valuation | Based on caratage and metal price | Based on purity-adjusted silver value |
| Market liquidity of metal | High | Moderate |
| Interest rates | Generally lower, around 8 to 9 per cent to start | Expected to carry a risk premium over gold loans |
Both loans are short-term secured facilities. The key structural difference is that silver’s lower per-gram value and higher volatility make it a better fit for small loans, while gold supports larger borrowing within the same weight limits.
The Road Ahead
The RBI’s Directions have opened the door, and market participants are now experimenting with execution models. Paul Merchants Finance has chosen a dedicated-branch model, while other banks and NBFCs are expected to roll out silver loans as part of their existing secured lending portfolios. The success of the product will depend on standardised silver purity testing, transparent valuation and responsible lending practices.
For the broader economy, silver lending could improve financial inclusion by giving rural and semi-urban households a formal channel to raise credit. It also aligns with the RBI’s objective of harmonising the regulatory framework across all regulated entities. The coming months will show how quickly the product scales, how pricing settles, and whether silver can follow the path that gold loans have already carved out in Indian lending.
Key Takeaways
- Paul Merchants Finance Pvt Ltd (PMFPL) became the first NBFC in India to launch a Loan Against Silver product with exclusive silver loan branches, starting from Chandigarh.
- Borrowers can avail silver loans ranging from ₹2,000 to ₹15 lakh against eligible silver jewellery, ornaments and coins.
- The facility follows the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025, which permitted regulated lenders to accept silver as collateral from April 1, 2026.
- The RBI Directions set tiered LTV limits: up to 85 per cent for loans up to ₹2.5 lakh, 80 per cent for loans up to ₹5 lakh, and 75 per cent for larger loans.
- A borrower can pledge up to 10 kilograms of silver ornaments and 500 grams of silver coins, while the limits for gold are 1 kilogram and 50 grams respectively.
- Paul Merchants Group, founded in 1984 by Mr S. Paul, is headquartered in Chandigarh, and its finance arm previously ran a gold loan business acquired by L&T Finance in June 2025.
