Gold loans have all the glitter in retail credit

Gold loans, having doubled through the year, emerged as the fastest-growing consumer credit segment in FY25, outpacing all retail advances, such as housing and vehicles, and even unsecured products such as credit cards and personal loans.

Banks’ outstanding credit against gold jewellery logged in at Rs 2.09 lakh crore on March 21, 2025, compared with Rs 1.03 lakh crore a year ago, showed the latest Reserve Bank of India (RBI) data.

Sustained demand amid a rise in prices of precious metal and the crackdown on unsecured loans like personal loans contributed to the surge in gold loans, bankers and loan finance executives said. The reclassification of some of the agriculture loans as gold loans by a few banks in May 2024 following the central bank’s directive also lifted the numbers in FY25, bankers said.

The exact quantum of this reclassification could not be ascertained. In general, surge in gold prices seems to spur borrowing against jewellery.

Gold loan growth surged in FY25 as lenders capitalised on the postCovid momentum, leveraging their extensive networks to tap into a largely unorganised and high-cost market, said Sanjeev Nautiyal, managing director at Ujjivan Small Finance Bank.

“The sustained increase in gold prices has naturally enhanced the borrowing potential for customers, making gold loans a more attractive option,” said CSB Bank managing director Pralay Mondal. He added that the Kerala-based lender has witnessed a clear shift in customers from the unorganised lending sector to the formal banking system, driven by the recent regulatory tightening around unsecured lending in segments like personal loans and microfinance.

According to Ajay Kumar Srivastava, MD at Indian Overseas Bank, the zero-risk gold loan where lenders see hardly any slippage is an automatic choice for growth. “It’s in the DNA, especially for south-based banks. There are of course some concerns at the appropriate level since many new players have forayed in the sector, creating possibilities of mis-sell,” he said. Between March 2020 and March 2025, gold loans increased at a CAGR of 44%, as gold prices rose at 17% annual rate. In absolute terms, gold prices are up 122% in these five years.

Gold loan portfolio rose from Rs 33,257 crore in March 2020 to Rs 208,735 crore in March 2025, RBI data shows. In the same period, gold prices went up from Rs 38,600 per 10 gm to around Rs 85,800 per 10 gm, according to industry data.

However, there are exceptions. For instance, in FY21 during the Covid pandemic, while gold prices rose only 3%, gold loans surged 128% as salary and employment losses forced borrowers to pledge their gold for cash.

RBI data shows banks’ gold loans share in total retail credit rose to 3.5% in March 2025 from 1.2% in March 2020. Similar growth has also been observed at non-banking finance companies. The outstanding gold loans of the NBFC sector is estimated at about Rs 2 lakh crore, industry executives said.

Analysts said in FY25, the growth was mainly led by value (as higher gold allowed borrowers to take out more loans) and not necessarily by volume. Gold loan customers are often repeat borrowers. Typically, when gold prices increase, such customers close the current loan and opt for a new loan because the same amount of gold fetches more. The loan-to-value, value of loan compared with the underlying collateral, is capped at 75%.

According to the World Gold Council, the sharp rise in gold price led to a 25% year-on-year fall in gold jewellery demand in India in January-March of this year. However, the same demand for gold loans continued to surge. This is because gold jewellery is pledged as collateral — as consumers sought to leverage the high gold price, WGC said. Lenders have also been pushing gold loans more as it is considered safe lending. Country’s largest lender State Bank of India’s gold loan book rose 53% YoY to Rs 50,011 crore at end of March.

Muthoot, a specialised gold finance company, saw assets under management, crossing Rs 1 lakh crore as on March 13 compared with Rs 92,964 crore as the end of December.

Gold loans expanded 35% yearon-year for CSB and accounted for 44% of its total portfolio Rs 31500 crore. The bank’s unsecured loans contribute merely 3.4% of the total portfolio. “This (gold loan) segment historically exhibits low delinquency levels, and the short tenure nature of these loans allows for efficient risk management. These factors collectively provide significant comfort to banks like ours, enabling us to support this segment with confidence and prudence,” said CSB Bank’s Mondal.

Banks like Ujjivan SFB, which have been trying to raise the share of the secured book have started exploring the gold loan market. For Ujjivan, FY25 marked the first full year of operations for the gold loan vertical.