Gold Loans Drive Credit Market Shift
India's credit market showed resilience and expanded in the December 2025 quarter, with the Consumer Credit Market Indicator (CMI) reaching 102. This marks the third consecutive quarter of improvement, indicating a strengthening credit ecosystem. Gold loans were the main driver of this surge, now making up a significant 36% of total loan volume and 39% of total value. This dominance is due to higher gold prices encouraging borrowing against assets and the loans expanding beyond southern states to areas like Uttar Pradesh, Madhya Pradesh, and Rajasthan. The average gold loan size has also grown considerably since March 2023 to about ₹1.9 lakh, showing people are using more gold as collateral for quick cash.
New Borrowers Expand Financial Access
The credit market's growth is also supported by new and younger participants. First-time borrowers now account for 15% of the total credit market, growing by 7%, mainly through personal and consumer durable loans. Individuals under 35 years old make up a notable 58% of this new group. Credit demand from semi-urban and rural areas has also increased its reach, now representing 54% of total demand, a three-percentage-point rise year-over-year. During these changes, the auto loan segment remained stable, especially for affordable vehicles priced between ₹5 lakh and ₹10 lakh, where daily loan supply increased by 10% year-on-year.
Risks Beneath the Surface of Growth
While the headline CMI figure and its components—demand (96), supply (98), and performance (107)—suggest a healthy market, a closer look reveals complexities. The strong performance index, boosted by fewer defaults, is positive. However, it exists alongside the increasing centrality of gold loans. This reliance on gold collateral, often used during financial difficulty, could hide underlying stress in household incomes not seen in regular data. Meanwhile, various Non-Banking Financial Companies (NBFCs) and banks have expanded their gold loan portfolios, benefiting from customer trust and fast disbursals. Periods of rapid gold loan growth have historically sometimes preceded economic shifts, as consumers tap into their last liquid assets. Furthermore, rising inflation and potential interest rate hikes in India pose a risk to repayment ability for all borrowers, especially those with variable rates, which could affect current low default rates. Analysts note that while onboarding new borrowers aids financial inclusion, strong credit education and risk assessment are vital to prevent future defaults. Growing dependence on gold loans is a significant risk. Unlike broader loan types, gold-backed lending is highly sensitive to gold price changes and can signal consumers borrowing out of necessity. The influx of first-time and younger borrowers, while showing financial inclusion, also brings a group with less credit history, risking higher defaults if conditions worsen or underwriting is weak. Firms heavily reliant on gold loans or unsecured loans for new borrowers may face more volatility than those with diversified income or focusing on mortgages. Regulatory changes concerning gold loan rules could also impact these players.
Future Outlook
Looking ahead, India's credit market is expected to continue growing, with a focus on retail lending. Experts predict that gold loans will remain a significant component, driven by consumer preference for quick liquidity, while digital channels will likely make access easier for new and younger borrowers. However, the path forward depends on macroeconomic stability, including inflation control and interest rate policy, which will affect borrower repayment capacity and lender risk appetite. Analysts are watching the diversification of loan types among new borrowers and the sustained performance of gold loan portfolios amid changing economic conditions.