India’s Gold Loan Boom: While Borrowers Win, Lenders Must Weigh Risks

Last month, I dropped by a small jewellery shop in Noida. The owner was busy going through a pile of invoices while a customer carefully inspected a gold chain. Amid the bustle, she mentioned casually, “I took a gold loan last week. It helped me pay my suppliers and cover staff salaries. The best part is, I can roll it over whenever I need as everything is quick and straightforward.” Her way of handling it is becoming the norm in many parts of India as gold loans aren’t just for emergencies anymore; they have turned into a regular, go-to financial tool, especially with gold prices climbing steadily.

Indeed, 2025 has seen gold prices shoot up dramatically, with growth of around 67 per cent so far in the current calendar year. For more than two decades in the past, whenever other assets like stocks or bonds have faltered, gold has held its ground. The yellow metal has remained a safe haven for investors, especially during economic volatility and inflation.

Not surprisingly, gold-backed loans had surged 122 per cent by August this year compared with the same time last year, reaching Rs 2.94 lakh crore. Banks are clearly trying to keep pace with the growing demand. According to the latest data from the Reserve Bank of India (RBI), loan against gold jewellery has jumped 117 per cent from Rs 1.4 lakh crore as of August 2024 to Rs 3.05 lakh crore as of August 2025.

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As per data from credit bureau CRIF High Mark, public sector banks led the gold loan originations’ value share with 51.9 per cent in Q1 FY26 while NBFCs are strong in small-ticket gold lending volumes. 

But the very surge that has lenders excited also brings a tricky dilemma. Gold is usually seen as a safe bet, but it has a history of sharp ups and downs. In fact, international gold prices had dropped more than 10 per cent during 2013 and 2015, around 8 per cent in 2018, and approximately 5 per cent in 2020. This year also, after soaring to an all-time high of around Rs 1,32,000 (24K) per 10 gram during Diwali, the prices dropped sharply to around Rs 1,28,000, ending the unprecedented rally.

Hence, the spike in gold prices leaves lenders with a tough decision that should they push ahead and expand their gold loan portfolios to ride the wave or play it safe with conservative lending, bracing for a possible price correction?

The stakes are high, as unlike regular loans, gold loans are often rolled over multiple times by borrowers, particularly when gold prices are high. That’s good for banks’ revenue, but it also leaves them exposed to the swings in gold prices. If gold prices suddenly dip, it could make it harder for borrowers to repay or renew their loans, which in turn could put pressure on the banks’ asset quality.

As of the June quarter, asset quality in the gold loan segment for lenders has remained resilient, with early-stage delinquencies (PAR 31–90) improving to 1.5 per cent from 1.8 per cent during the corresponding period last fiscal and late-stage stress (PAR 91–180) concentrated outside the Rs 5 lakh and above ticket segment. However, delinquencies remained highest in the less than Rs 2.5 lakh segment compared to loans above Rs 2.5 lakh, as per data from CRIF High Mark.

Importantly, the RBI has taken note of these risks and introduced stricter guidelines for gold loans. These include capping the loan-to-value (LTV) ratio at 75 per cent for loans above Rs 5 lakh, no loans for buying gold in any form, repayment of principal and interest mandatory within 12 months, more transparency in loan agreements, and more.

While these rules are meant to protect lenders, they also push banks and NBFCs to strike a balance between chasing growth and keeping up with regulatory and risk-management requirements.

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The challenge goes beyond just regulations. Microfinance institutions are already feeling the effects of the growing demand for gold loans. By June 2025, their gross loan portfolio had dropped to Rs 3.59 lakh crore, down 17 per cent year-on-year, as per credit bureau CRIF High Mark.

That’s because reportedly a number of low-income borrowers are turning to gold loans as they are faster, more flexible, and often come with lower interest rates. For microfinance institutions, this means not just lost business but also mounting pressure to make their products more competitive.

Consultancy report from credit rating agency ICRA suggests that the organised gold loan market could reach Rs 15 lakh crore by March 2026, thanks largely to banks increasing their share in the segment.

Still, it would be important for lenders to manage credit carefully as Gold is inherently volatile, and pushing ahead too aggressively without proper risk safeguards could easily backfire. For borrowers, a drop in gold prices could mean smaller loans or tougher repayment terms.

At the end of the day, the story of gold loans in 2025 isn’t just about the numbers going up. It’s about timing, careful judgment, and strategy. Lenders have to choose whether to ride the wave of soaring gold prices or stick to cautious lending, finding the right balance between short-term growth and long-term stability.