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High Defaults Among Large Gold Loan Borrowers
Defaults are climbing significantly for gold loan borrowers who owe more than ₹2.5 lakh. These borrowers, who make up about 48% of those with gold loan collateral, are also more likely to have several loans, with 46% holding over five. This rise in defaults comes as the gold loan market has rapidly grown, now making up 11% of India's retail credit portfolio as of December, up from 5.9% in March 2022.
Gold Loan Market Surges Amid Rising Defaults
Data from TransUnion CIBIL shows borrowers with over ₹2.5 lakh in gold loans had a 1.5% delinquency rate by December, about 2.2 times higher than borrowers with smaller loan amounts. For those with more than five gold loans, the default rate rose to 1.9%. These figures compare to an average delinquency rate of 1.1% for loans originated in the first half of 2025. The average loan amount has also more than doubled to ₹1.96 lakh since April 2022. Gold loans have become India's second-largest retail loan segment, holding 11% of the retail credit market by December, a significant jump from 5.9% in March 2022. This growth is driven by strong demand from small businesses and a surge in gold prices last year, which allowed borrowers to take out larger loans. The entire gold loan market reached ₹16.2 lakh crore by year-end. Factors contributing to this expansion include more borrowers, larger loan sizes, increased lender involvement, and a wider range of customers, including women with deeper credit histories.
Lenders Brace for Price Swings and Higher Risk
Lenders are growing cautious after gold prices fell from their peaks, correcting by 15% in March. Financial institutions are still well-protected, usually maintaining loan-to-value (LTV) ratios of 60-65%, down from the previous 75% regulatory limit. Experts now stress that collateral alone isn't enough to judge borrowers. A fuller evaluation, considering total debt, ability to repay, recent credit habits, and borrowing from other lenders, is crucial. The data also suggests borrowers with past serious defaults are much more likely to stop using formal credit channels, implying gold loans might increasingly become a final option. Banks like Bank of Baroda are closely watching their gold loan portfolios in real-time after the recent price drop.