Gold Loans Power Credit Growth
India's credit market grew strongly in the quarter ending December 2025, with the Credit Market Indicator (CMI) reaching 102, up from 97 a year earlier. This expansion was largely driven by gold loans, which now represent 36% of retail lending volume and 39% by value. Higher gold prices have encouraged consumers to borrow more against their assets, pushing the average gold loan size to Rs 1.9 lakh – nearly 1.8 times larger than in March 2023. This boom in gold-backed lending has significantly boosted the CMI's supply side, showing a clear shift in how credit is being issued.
Lenders Favor Prime Borrowers, Squeezing Newcomers
However, underlying this overall market growth is a significant rise in lender caution. Financial institutions are now strongly favoring borrowers with good credit histories and CIBIL scores of 730 or higher, aiming to reduce their portfolio risk. This strategy is clearly reflected in the sharp drop in new-to-credit (NTC) customers, whose share of new loans fell to 16% in January 2026, down from 22% two years ago. The focus has shifted to serving existing, creditworthy customers and offering larger loans. Banks, especially public sector ones, are increasing their presence in the gold loan market, often using gold jewelry as security for agricultural loans.
CMI: A Mixed Picture of Credit Health
The CMI's rise mixes two different stories about credit health. While the performance sub-index improved to 107 in December 2025, mainly due to lower 90-day delinquency rates across major loan types, the supply side of the CMI climbed more modestly to 98. This supply-side increase was heavily boosted by the booming gold loan sector. Although overall retail credit growth is steady, the strong shift towards secured loans like gold loans shows a move away from unsecured, consumption-driven credit, which often attracted newer borrowers.
Gold Loan Market Deepens and Expands
Gold loans have grown from a niche offering to a major retail credit product, spreading from southern India to northern and western regions. Public sector banks held an 82% share of the organized gold loan market by March 2025, though non-banking financial companies (NBFCs) are expanding faster in certain areas. The organized gold loan market is expected to reach Rs 15 trillion by March 2026. Higher gold prices allow for larger loans against the same collateral (improving the loan-to-value ratio) but also bring price volatility risks. A weaker rupee often pushes gold prices higher, further boosting loan values. Gold loans have historically provided stability during economic uncertainty, proving resilient while other lending types face review.
Micro-LAP Struggles Amid Broader Market Strength
The main worry in the credit market remains the micro-loan against property (LAP) segment. Delinquencies of 90+ days in micro-LAP increased by 35 basis points year-on-year to 3.1% in December 2025, continuing to be a significant stress point. Analysts report rising defaults in unsecured business loans and micro-LAP, especially for smaller loans. The reliance on collateral for gold loan growth also carries risks. Large swings in gold prices can lead to margin calls or require borrowers to add more collateral, threatening their ability to repay. Moreover, if lenders focus heavily on prime borrowers in other areas, riskier segments like micro-LAP could face tighter credit access and higher default rates, particularly if the economy weakens.
Analyst Outlook: Caution and Segmentation
Analysts are cautiously optimistic about the NBFC sector, expecting 15-17% growth in FY26, fueled by consumer demand and the increasing formalization of gold loans. However, they agree that asset quality needs close monitoring, especially in unsecured lending and microfinance. While the broader credit market shows resilience, the sharp contrast between the booming, secured gold loan sector and troubled niches like micro-LAP indicates a market dividing by risk profile. Future growth will likely favor borrowers with strong credit histories, while segments like Micro-LAP will need careful risk management and possibly targeted support.