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Gold Loans Explode, Borrower Profile Shifts
The Indian gold loan market has seen explosive growth. Loan balances have multiplied 3.8 times since March 2022, making up 11.1% of total retail credit—second only to home loans. Average loan amounts have more than doubled, from about ₹90,000 to ₹1.96 lakh. More credit-tested individuals are borrowing, with prime and above-prime borrowers making up 52% of loans in 2025, up from 43% in 2022. Women borrowers are also a key driver, accounting for 39% of loans in 2025. Public sector banks now hold 62% of gold loan balances, while NBFCs have 11%.
Higher Loans Mean Higher Default Risk
Behind the growth figures, delinquency rates are climbing. Borrowers with gold loan balances over ₹2.5 lakh show delinquency rates 2.2 times higher than those with smaller amounts. Overall delinquency for loans made in the first half of 2025 was 1.1%. About 48% of borrowers now owe over ₹2.5 lakh, showing a significant shift to higher borrowing. The average outstanding loan per borrower reached ₹3.1 lakh by December 2025. Nearly half (46%) of borrowers with over ₹2.5 lakh in loans also have more than five individual loan accounts, greatly increasing their risk of default.
RBI Tightens Rules Amid Gold Price Swings
The Reserve Bank of India (RBI) is responding to these risks with a new framework starting April 1, 2026. It introduces tiered Loan-to-Value (LTV) ratios: 85% for loans up to ₹2.5 lakh, 80% for ₹2.5-5 lakh, and 75% for loans above ₹5 lakh. This aims to curb excessive borrowing and improve loan approval standards, rather than just relying on collateral. Meanwhile, gold prices have been volatile, falling 15% in March 2026, its biggest monthly drop since October 2008. Such price swings threaten collateral value and increase recovery risks for lenders, especially those with weaker loan approval practices.
Mounting Risks Cloud Gold Loan Sector
Several factors point to a weaker outlook for the gold loan sector. Borrowers taking multiple gold loans from different lenders makes it hard to track total debt and assess risk. Layered borrowing, where gold loans are taken on top of existing unsecured debt, increases financial pressure and reduces the ability to repay, particularly if income is disrupted. The trend of using gold loans as a financial backup, especially for borrowers with a history of serious defaults, suggests some may be using them as a last resort, making it harder to get future loans. While competition from banks and NBFCs can boost efficiency, it might also encourage risky lending that overlooks underlying issues. Additionally, a sharp or sustained drop in gold prices could severely reduce collateral value, making it harder for lenders to recover their money. Fitch Ratings noted heightened risks due to falling gold prices, calling for robust risk controls.
Outlook: Growth Amid Caution
The organized gold loan market is expected to keep growing, potentially reaching ₹18 trillion by FY27. Banks, especially public sector ones, are aggressively increasing their market share and catching up with NBFCs. Valuations for leading NBFCs like Muthoot and Manappuram trade between 15x and 17x FY26 earnings, suggesting optimism but also caution about long-term growth sustainability. The sector's future depends on lenders balancing growth with careful risk management, properly following the new RBI rules, and navigating gold price volatility.