Banks Overtake NBFCs in India's Rapidly Expanding Gold Loan Market

BANKINGFINANCE
Whalesbook Logo
AuthorKavya Nair|Published at:
Banks Overtake NBFCs in India's Rapidly Expanding Gold Loan Market
Overview

Indian banks are aggressively capturing market share in the booming gold loan sector, challenging Non-Banking Financial Companies (NBFCs). Banks' share surged to 49.7% by March 2025, up from 30.6% in 2020, while NBFCs fell to 50.3% from 69.4%. This shift fuels intense competition, driven by easy liquidity, rising gold prices, and favorable regulatory conditions for banks.

Banks are rapidly closing the gap with Non-Banking Financial Companies (NBFCs) in India's burgeoning gold loan market. NBFCs' share of aggregate gold loans fell by nearly 20 percentage points over the past five years to 50.3% as of March 2025, down from 69.4% in 2020. Simultaneously, banks increased their slice of the pie from 30.6% to 49.7% in the same period.

This dramatic shift occurs as overall gold-backed lending expands sharply. The market is fueled by easy liquidity conditions, aggressive pricing from banks, and a surge in gold prices that boosts both borrower demand and lender appetite. According to the Reserve Bank of India's Financial Stability Report, combined gold loans now account for 5.8% of total outstanding loans.

Banks' aggressive scaling is evident in their market share jump, gaining 9.6 percentage points in just one year to reach 49.7% in FY25. The gold loan portfolio has emerged as the fastest-growing loan category, with outstanding loans more than doubling year-on-year on a consolidated basis. Loan books surged from ₹89,898 crore in November 2023 to ₹1.59 lakh crore by November 2024.

Bankers note that demand for gold loans began gaining traction during the pandemic when regulatory easing on loan-to-value (LTV) norms provided support. This allowed banks to enter the segment more aggressively, leveraging their lower funding costs and wider branch networks to compete with NBFCs on pricing and reach. The latest rally in gold prices, climbing approximately 68% in 2025 to around ₹1.38 lakh per 10 grams, further boosted loan volumes.

Higher prices allow borrowers to raise larger loans against the same quantity of gold, while keeping LTV ratios comfortable for lenders. As a fully-secured product with short tenures and relatively low credit risk, gold loans gained further traction when unsecured retail lending faced regulatory scrutiny. With gold prices remaining elevated and credit conditions supportive, analysts expect competition in the segment to intensify, blurring the traditional lines between banks and non-bank lenders in one of India's fastest-growing retail loan categories.

Disclaimer:This content is for educational and informational purposes only and does not constitute investment, financial, or trading advice, nor a recommendation to buy or sell any securities. Readers should consult a SEBI-registered advisor before making investment decisions, as markets involve risk and past performance does not guarantee future results. The publisher and authors accept no liability for any losses. Some content may be AI-generated and may contain errors; accuracy and completeness are not guaranteed. Views expressed do not reflect the publication’s editorial stance.