Indian households are holding a significant amount of gold, reshaping the lending market in the country, as per a report. Reports indicate that these households collectively possess over 34,000 tonnes of gold, valued at nearly $5 trillion according to Kotak Mahindra Bank. While a large portion of this gold remains unused, it is increasingly being utilized as collateral for obtaining quick loans.
Gold-backed lending has emerged as a rapidly growing sector within India’s retail credit landscape. This trend is occurring amidst a slowdown in other consumer loan types, particularly unsecured personal loans, due to stricter regulations imposed by the Reserve Bank of India in late 2023. Consequently, more individuals are turning to gold loans, which offer easier accessibility, require minimal documentation, and have swift disbursement processes.
The surge in global gold prices since 2024 has further enhanced the appeal of gold loans. The increased value of gold jewelry has enabled borrowers to unlock more funds against their assets. Notably, data from the RBI reveals a substantial increase in gold loans, with the amount reaching Rs 4 trillion in January from Rs 1.75 trillion a year earlier. This growth positions gold loans as the fastest-expanding retail credit category in India after home and vehicle loans.
Despite the significant growth reported, the actual size of the gold loan market is believed to be larger than official figures suggest. Experts estimate the market to be around Rs 14 trillion, with lending by non-banking financial companies (NBFCs) not fully captured by RBI data. NBFCs play a substantial role in the gold loan market, accounting for nearly half of the sector. The rapid expansion of gold loans has attracted global interest, with private equity firm Bain Capital planning to acquire a substantial stake in Manappuram Finance, and Japan’s Mitsubishi UFJ Financial Group acquiring a 20% stake in Shriram Finance, which is also expanding its gold loan operations.
