- Gold loan borrowers have historically been among the most disciplined repayers in any portfolio
- Gold prices have fallen sharply as a result of a shift in interest rate expectations and a stronger dollar
- Gold's role as a hedge is intact in spite of a shift in interest rate expectations
Gold loans have quietly become the biggest source of retail credit in India.
A latest report by TransUnion CIBIL shows that gold loans now make up 36 per cent of total loan volumes and nearly 40 per cent by value. This is the highest share among all retail loan categories.
Two factors are driving this surge. One, gold prices have stayed high for long. Two, people prefer borrowing against gold because it is quick and seen as safe.
The average gold loan size has also risen sharply. In the December 2025 quarter, it touched Rs 1.9 lakh, showing how fast this segment is growing.
Gold Loans Now Mainstream
Earlier, gold loans were mostly popular in southern states. That is also changing. The report notes strong growth in Uttar Pradesh, Madhya Pradesh and Rajasthan, where more households are now pledging gold to raise money.
The borrower profile is changing too. More than half of these loans are now taken by prime and above category customers. This means gold loans are no longer seen as an option of last resort. They are becoming a mainstream credit choice.
Credit demand is especially strong in small towns and rural areas. Non-metro regions now account for 54 per cent of total borrowers, up 3 percentage points from last year. First-time borrowers have also increased to 15 per cent.
The Consumer Market Indicator (CMI), which tracks credit health, rose to 102 in the December quarter. It was 97 a year ago. This marks the third straight quarter of improvement.
Gold Price Volatility
But there is a new risk that lenders are watching closely.
Gold prices are seeing sharp swings. In March, international gold prices fell nearly 12 per cent, the steepest monthly fall since 2008. Rising oil prices due to the Iran war, inflation worries, and expectations of higher interest rates have hurt gold, which does not earn interest like bank deposits.
Chandan Pal, CMO at Scienaptic AI, warned that such sharp corrections can test whether lenders are truly tracking their gold loan portfolios in real time.
"Most gold loan portfolios carry conservative Loan-to-Value (LTV) buffers. But a 13 per cent correction in a single month tests whether those buffers are being monitored in real time or just on paper," he said.
He added that lenders who rely on monthly or quarterly checks may end up chasing borrowers after the damage is done, while those with live monitoring can spot stress early.
At the same time, he pointed out an important trend. "Gold loan borrowers have historically been among the most disciplined repayers. The emotional and cultural value attached to pledged gold pushes borrowers to make payments or add more gold rather than default."
Speaking on the fall in gold prices, market expert Siddharth Maurya of Vibhavangal Anukulkara said it is more about changing interest rate expectations and a stronger dollar, not a long-term weakness in gold. He believes gold remains strong in the medium to long term due to central bank buying and global uncertainty, and price dips could be buying opportunities for investors.
"Investors should look at any pullbacks in gold as a tactical buying opportunity in the short term. Gold's role as a portfolio hedge is intact in spite of what is currently being experienced in terms of a shift in interest rate expectations and a stronger dollar," added Maurya.
