The gold loan market is experiencing rapid growth, but recent data indicates that this surge is accompanied by heightened risks, particularly as borrowers are opting for larger loans and utilizing multiple accounts.
Gold loans have expanded nearly 3.8 times since March 2022, with their share in the retail credit market spiking from 5.9% to 11.1% by December 2025, positioning gold loans as the second-largest retail loan category after home loans.
Several factors are propelling the robust growth in gold loans. This includes quicker loan approvals, escalating gold prices, and convenient access through non-banking lenders, making gold loans increasingly popular among borrowers.
What was previously viewed as an emergency measure is now evolving into a regular source of credit for many individuals.
The total value of new loans has surged by 5.1 times since April 2022, coinciding with a more than twofold increase in the average loan size, escalating from Rs 90,000 to Rs 1.96 lakh.
The report highlights a broader spectrum of borrowers now availing gold loans, encompassing individuals with longer credit histories and an uptick in women borrowers.
TRANSITION TO LARGER LOANS
Data from TransUnion CIBIL illustrates a noticeable shift in borrowing patterns among individuals.
Approximately 48% of new gold loan customers are now carrying outstanding loans exceeding Rs 2.5 lakh post-loan acquisition, signaling a departure from small loans towards more substantial borrowing.
With larger loan sizes, borrowers are assuming higher levels of debt, amplifying risks in case of repayment difficulties.
INCREASED RISK DUE TO MULTIPLE LOANS
Another significant trend is the uptake of multiple gold loans by borrowers instead of dependence on a single loan.
The average number of gold loan accounts per borrower has elevated from 2.3 to 2.9, with many borrowers securing loans from multiple lenders concurrently.
Among borrowers with outstanding amounts surpassing Rs 2.5 lakh, around 46% possess more than five gold loan accounts, a segment more prone to repayment challenges.
This recurring borrowing trend is prompting concerns regarding mounting leverage among borrowers.
ESCALATING DEFAULT RISK
The report underscores that borrowers with larger loan amounts are at a heightened risk of default.
Individuals with outstanding sums exceeding Rs 2.5 lakh exhibit a delinquency rate of 1.5%, approximately 2.2 times higher than those with lower loan amounts, indicating a parallel increase in risk for lenders.
Moreover, borrowers with a history of significant defaults face even greater risks, with a likelihood of exiting the formal credit system about 1.6 times higher than those devoid of prior defaults.
This trend hints that for some borrowers, gold loans are emerging as a final recourse when alternative credit avenues are unavailable.
NECESSITY FOR PRUDENCE
Bhavesh Jain, Managing Director of TransUnion CIBIL, emphasized the imperative for cautious lending practices as the segment expands.
He stressed the importance of lenders balancing growth with prudence, highlighting that collateral strength, while crucial, should not be the sole criterion for assessing borrowers.
Jain recommended a comprehensive evaluation of the borrower’s complete financial standing, encompassing total indebtedness, repayment capacity, recent credit behavior, and cross-lender exposure.
The substantial upsurge in gold loans signifies a robust demand for convenient credit. However, the data also underlines mounting stress, particularly among borrowers availing significant sums and multiple loans.
As the sector continues to burgeon, lenders may need to enhance scrutiny to manage risks effectively.
For borrowers, this trend underscores the significance of judicious borrowing practices, as higher loan amounts and multiple accounts can heighten default probabilities.
Gold loans retain a pivotal position in India’s retail credit market, yet emerging trends indicate the necessity for vigilant monitoring of the rapid expansion.