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 loans and away from unsecured and small business loans, aided by rising financial literacy among borrowers and lenders’ lower risk appetite. Borrowers benefit from a 300-600 basis point rate arbitrage, while lenders get a low-risk secured asset.
Despite the recent surge, gold loan penetration remains low, with only around 11 per cent of the gold held by the bottom 60 per cent of households currently being used as collateral.
“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”.
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.
Personal loans tend to be 300-600 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 requirements such as education, medical emergencies and travel. Small businesses, meanwhile, are increasingly using gold loans to meet working capital requirements, adding another source of demand.
Gold loans, including priority-sector loans, have consequently become the second-largest category of retail loans at commercial banks, accounting for 15.4 per cent of total retail loans as of May 2026, after mortgages. Retail gold loans have grown 112 per cent over the past two years, compared with 13 per cent growth in total retail loans.
However, the rapid growth is coming off a low base. Only about 1,400-1,500 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 about 11 per cent. NBFC penetration is only 2.6 per cent, compared with 9.6 per cent for commercial banks.
This leaves substantial headroom for lenders. The report estimates that Indian households hold around 25,000 tonnes of gold, with southern states accounting for about 42 per cent of the total.
Interestingly, the southern market may not be as saturated as commonly perceived. Around 70 per cent of system gold loans are concentrated in the region, but NBFC penetration there is 2.6 per cent, broadly comparable with 2.1-2.5 per cent in other regions. Southern households hold about 40 per cent of the country’s household gold, creating a much larger addressable market.
“South is not the most penetrated,” the report said, noting that further growth in the region would depend on investments in branches and distribution channels. System penetration in other regions remains only 4-7 per cent.
Competition is expected to intensify as banks and NBFCs expand their gold loan portfolios. However, established gold lenders have an advantage from their branch networks, distribution capabilities and faster turnaround times. These factors create barriers to entry and could protect incumbents’ profitability, according to the report.
Commercial banks currently account for around 80 per cent of the gold-lending market, although NBFCs have been gaining share. Gold-focused NBFCs continue to have a differentiated role because they largely underwrite against the collateral, while banks place greater emphasis on the borrower.
The growth opportunity is also supported by the secured nature of the product. Higher gold prices have lifted the value of loan originations faster than volumes, indicating higher loan-to-value ratios.