The Big Boom In Gold Loans

Gold loans accounted for 41 per cent of retail loan disbursements in FY26, up sharply from 18 per cent in FY23 and 20 per cent in FY24.

Photograph: ANI Photo

Gold loans’ share of system credit could rise to around 10 per cent over the next five years, from 2 per cent in FY24 and 5 per cent in FY26, as a multi-year cultural shift turns gold from a family heirloom into a monetisable asset, JP Morgan said in a report.

The shift is driving borrowers towards gold-backed credit and away from unsecured personal and small-business loans, aided by rising financial literacy and lenders’ preference for lower-risk secured assets.

‘Gold loans in India are secured retail credit with robust growth,’ the report said, adding that the next phase of growth ‘should be structural rather than cyclical’.

Gold loans gain momentum

The shift is already visible in retail credit.

Gold loans accounted for 41 per cent of retail loan disbursements in FY26, up sharply from 18 per cent in FY23 and 20 per cent in FY24.

Over the same period, the share of personal loans declined from 16 per cent to 13 per cent.

Why borrowers are switching

Lower borrowing costs are a key driver.

Gold loans from banks are generally priced at 8 to 14 per cent, while NBFCs charge 16 to 22 per cent.

Personal loans tend to be 300 to 600 basis points more expensive, making gold-backed borrowing increasingly attractive to households and small businesses.

Rising financial literacy is also encouraging households to monetise idle jewellery to meet liquidity needs such as education, medical emergencies and travel.

Small businesses, meanwhile, are increasingly using gold loans to meet working capital requirements.

Gold loans, including priority sector loans, have consequently become the second-largest category of retail loans at commercial banks after mortgages, accounting for 15.4 per cent of total retail loans as of May 2026.

Retail gold loans have grown 112 per cent over the past two years, compared with 13 per cent growth in total retail loans.

Banks retain market edge

Despite the rapid expansion, penetration remains low, leaving substantial headroom for lenders.

Only about 1,400 to 1,500 tonnes of household gold is currently pledged as collateral across the banking system, against an estimated 12,500 tonnes held by the bottom 60 per cent of households.

This implies penetration of 11 per cent.

The report estimates that Indian households hold around 25,000 tonnes of gold in all.

NBFC penetration is only 2.6 per cent, compared with 9.6 per cent for commercial banks, underlining the scope for further growth.

South still has headroom

The southern market, often seen as saturated, may also offer significant room for expansion.

Around 70 per cent of system gold loans are concentrated in the region, which accounts for about 40 per cent of the country’s household gold.

Yet NBFC penetration there, at 2.6 per cent, is broadly comparable with 2.1-2.5 per cent in other regions.

‘South is not the most penetrated,’ the report said, noting that further growth would depend on investments in branches and distribution channels.

Higher gold prices help

Competition is expected to intensify as banks and NBFCs expand their gold loan portfolios.

Established lenders, however, have an advantage through their branch networks, distribution capabilities and faster turnaround times, creating barriers to entry that could help protect incumbents’ profitability.

Commercial banks currently account for around 80 per cent of the gold-lending market, although NBFCs have been gaining share.

Gold-focused NBFCs retain a differentiated role as they largely underwrite against the collateral, while banks place greater emphasis on the borrower.

Higher gold prices have also lifted the value of loan originations faster than volumes, supporting the growth opportunity.

Feature Presentation: Ashish Narsale/Rediff