Retail borrowers are increasingly preferring gold loans as against personal loans, said bankers. This is primarily because of the sharp rise in gold prices that is helping them raise higher amounts at lower interest rates.
According to sectoral deployment data from the Reserve Bank of India in October, the growth rate of bank credit to loans against gold jewellery has doubled from 65% last to 128.5% on year to Rs 3.37 lakh crore. At the same time, the ‘other personal loans’ segment slowed to 9.9% from 10.4% a year ago and for credit card outstanding fell to 7.7% from nearly 17% a year ago.
What did CS Shetty say?
C S Setty, chairman, State Bank of India told FE that the scaling of the bank’s personal loans business has not been as rapid as they would like, and it was largely due to rise in gold prices.
“Many salaried customers are opting for gold loans instead, since they can access larger amounts at cheaper rates compared to unsecured personal loans,” said Setty.
In fact, given the current situation Setty added that when one talks about personal loans, one should include both unsecured loans and gold loans together.
The sharp rise is the prices is one of the main reasons for this change. In the past year, gold prices have rocketed by 74% to Rs 1.33 lakh leading to a rise in the average ticket size. While rural borrowers typically borrow between Rs 20,000 and Rs 2 lakh, urban customers and business owners are opting for higher loan amounts, with some lenders reporting average ticket sizes of around Rs 2.5 lakh.
Traction to increase in the segment?
The traction in the segment could increase further from April 1 due to the changes made by the RBI to the loan-to-value (LTV) ratio. Currently, the loan-to-value, which is the ratio of the outstanding loan amount to the value of the pledged eligible collateral as on that day, for gold loan is 75% but after April 1, loans with ticket size of less than Rs 2.5 lakh would have an LTV of 85% and for loans between Rs 2.5 lakh and Rs 5 lakh, would be 80%.
As far as interest rates go, gold loans also have lesser interest rates as compared to personal loans. According to Bankbazaar, interest rates on gold loans range between 9-15%, while for personal loans it is higher at 10-20%. “Personal loans and credit cards carry higher interest rates and stricter eligibility norms, especially for customers with limited credit history. Gold loans offer lower rates, flexible terms, and instant access, making them the preferred option for liquidity without impacting credit scores,” Narendra Dixit – head of retail banking at CSB Bank said.
According to Anto George T, chief operating officer at South Indian Bank, the demand is coming from all regions and customer segments—business owners, self-employed individuals, farmers, and households.
While South India remains a traditional stronghold, lenders are seeing rapid growth across Western and Northern India as well. “Many borrowers prefer top-ups instead of liquidating gold, reflecting the emotional value attached to the asset,” Dixit said. Fresh gold inflows also remain healthy.
Despite higher loan values, bankers said that the repayment behaviour remains strong. Gold loans continue to show among the lowest delinquency levels in retail credit, aided by flexible repayment structures and the secured nature of the product.
Competition in the segment has intensified as banks, non-bank lending companies, and financial technology companies vie for market share. NBFCs and fintech-led players continue to lead in customer acquisition through faster processing and local networks, particularly in rural markets. Banks, however, are closing the gap by leveraging lower cost of funds, brand trust, and faster turnaround times through digitisation. “The battleground is shifting to speed combined with trust,” Dixit said.