With the sharp rise in the prices of the yellow metal, loans against gold have registered an over 100% year-on-year growth in the past 10 months. Kshipra Petkar explains the reasons for the same.
l Why demand for gold loans has risen so sharply
GOLD IS SEEN as a safe-haven asset, especially during periods of economic or geopolitical uncertainty. With global tensions rising and domestic cost pressures elevated, households and small businesses have increasingly turned to gold-backed borrowing to meet short-term liquidity needs.
For many borrowers, gold loans offer a faster and more reliable source of funds compared to other forms of credit. Disbursals are often completed the same day with minimal documentation. This makes gold loans attractive during financial emergencies. In semi-urban and rural India, gold jewellery often represents the most liquid household asset. Importantly, they can raise funds without selling family gold, which carries strong emotional, cultural, and financial significance.
l How much of it is price-driven?
RISING GOLD PRICES have played a decisive role in amplifying loan growth. Gold prices rose 64.6% year-on-year in November, compared to a 24.5% increase in the previous year. Over one year, the price of gold has risen by 79%, as per MCX data. Higher prices directly translate into higher loan eligibility. Borrowers can now access larger loan amounts against the same quantity of jewellery, pushing up ticket sizes and outstanding credit. Even if the number of borrowers grows moderately, the value of loans expands sharply due to price appreciation.
l Such loans score over unsecured credit
AS PER AN Emkay Research report, public sector banks offer the lowest rates in the segment. Punjab National Bank offers gold loans at around 8.4%, while private lenders such as City Union Bank and Karur Vysya Bank charge interest rates as high as 11%. At the same time, unsecured credit —personal loans or credit cards— has come under tighter regulatory scrutiny due to rising delinquencies. This has resulted in stricter underwriting and slower approval processes. As unsecured borrowing became more difficult, borrowers gravitated towards secured products like gold loans, where approval odds are higher and costs are lower.
l Why banks are aggressively pushing gold loans
FROM A LENDER’S perspective, gold loans are among the safest retail products. They typically show the lowest delinquency rates because they are fully secured and easy to recover in case of default. This has made gold loans particularly attractive at a time when banks are witnessing stress in some unsecured retail segments. Bankers also say gold loans offer better returns on risk-weighted assets and, in some cases, priority sector benefits. With capital efficiency increasingly important, secured lending against gold provides a relatively low-risk way to grow balance sheets. Analysts highlight that nearly 20% of agriculture-linked gold loans were reclassified as retail loans after a hike in eligibility limits. This technical shift has contributed to the apparent spike in retail gold loan growth. Also, as gold prices rose, the overall outstanding value of existing loans also grew, further inflating year-on-year growth figures.
l Risks for banks
WHILE RISING GOLD prices improve collateral coverage and reduce loss-given-default risks, they also raise concerns. Analysts say a sharp correction in gold prices could weaken collateral values and test recovery assumptions, especially if lending standards loosen excessively. Regulators and analysts have cautioned that lenders must avoid over-reliance on price momentum and ensure robust valuation, monitoring, and borrower suitability checks.
l How NBFCs view the opportunity
GOLD-LOAN FOCUSED non-banking finance companies (NBFC) have historically dominated the segment, especially in southern and rural markets. However, competition from banks has compressed margins. While NBFCs benefit from deep local networks and faster service, banks are leveraging lower funding costs to gain market share. NBFCs are now focusing on customer retention, cross-selling, and risk management to maintain profitability amid intense competition.
l Lending norms
IN 2025, THE Reserve Bank of India revised the guidelines on loans against gold and silver. Effective April 1,2026, loans below `2.5 lakh can have a loan-to-value (LTV) ratio of up to 85%, while LTV for loans between `2.5 lakh and `5 lakh are capped at 80%. The LTV is at 75% now. While this allows higher leverage for small borrowers, some banks and NBFCs have voluntarily tightened LTV limits and pricing to protect asset quality amid volatile gold prices.
l Future trends
AS LONG AS gold prices remain elevated and economic uncertainty persists, gold loans are likely to remain a strong growth driver for banks. However, sustainable expansion will depend on disciplined underwriting, prudent LTV management, and close regulatory oversight to prevent asset-quality risks from emerging in the next cycle.