Data from TransUnion CIBIL shows 20% of new gold loans are going to individuals already holding defaulted credit, signaling rising risk in the sector. While gold loans have become India's second-largest retail credit product with a Rs 20 lakh crore AUM, this trend highlights potential repayment pressure despite historically low credit losses.
The Indian gold loan sector has seen a rapid expansion, now positioning itself as the second-largest retail credit category, second only to home loans. According to the latest data from TransUnion CIBIL, the total assets under management for this segment have reached approximately Rs 20 lakh crore. While the sector has historically maintained low credit loss rates of around 0.3%, new data points to emerging risks that warrant investor attention.
A significant shift in lending patterns shows that one out of every five gold loans is currently being disbursed to borrowers who already have non-performing assets, or unpaid debt, on other credit lines. This development suggests that lenders may be facing higher credit risk than the sector’s overall low delinquency figures might imply. As gold loans continue to gain popularity among younger demographics, including Gen Z, and expand geographically from traditional southern markets into western and northern regions, the profile of the typical borrower is undergoing a major change.
Evolving Borrower Profile and Credit Dynamics
The composition of the lending market is shifting in other ways as well. The segment of first-time borrowers, known as new-to-credit individuals, has seen its share in total credit originations drop significantly compared to pre-pandemic levels, falling to about 10-12%. These new borrowers are increasingly turning toward consumer durable loans, such as smartphone financing, rather than traditional products like two-wheeler or agricultural loans.
Women borrowers are playing an increasingly prominent role in the gold loan market, representing more than one-third of all disbursements. Data indicates that these borrowers are often leveraging their gold holdings to support entrepreneurial activities. Efforts to improve credit literacy among women have also shown promise in enhancing the quality of loan portfolios, suggesting that financial education could be a key tool for lenders looking to manage risk in this growing segment.
Credit Card Market Stagnation
In contrast to the rapid growth of gold loans, the credit card industry appears to be hitting a plateau. The number of unique credit card holders has remained steady at 5.2 crore, suggesting that growth is now coming from existing users obtaining multiple cards rather than from the acquisition of new customers. The share of first-time borrowers entering the credit card market has also declined sharply, falling from 26% to around 7-8%. This shift reflects a move toward lending primarily to established, credit-tested individuals. As competition from UPI for payments and gold loans for credit grows, the credit card sector's ability to attract new, high-quality customers will be a key area for investors to track in the coming quarters.