India’s gold loan market is expanding at a pace that is reshaping retail credit, but the growth is raising a more important question than the value of the collateral: are lenders financing new economic activity, or helping financially stretched borrowers move existing debt from one institution to another? The answer will influence how households, small businesses and lenders manage credit risk across the country.
Loans against gold jewellery issued by banks rose 88.1% year-on-year to Rs 5.52 lakh crore as of July 31, 2026, according to Reserve Bank of India data cited in the report. The increase was slower than the 136.4% growth recorded a year earlier, after lenders adjusted to stricter RBI regulations. The banking sector’s outstanding gold loans were reported at around Rs 5.6 lakh crore as of August 31, while gold loans from non-banking financial companies grew 69% to Rs 3.6 lakh crore, according to Reuters figures cited in the report.
This is no longer a peripheral lending product. Macquarie Capital’s Suresh Ganapathy told The Times of India that gold loans accounted for nearly 28% of non-housing retail lending, making them the second-largest retail lending category after mortgages. The segment also contributed a third of incremental retail lending in the first quarter of FY27, the report said. An ICRA report cited in the article projected that the gold loan market could grow by more than 30% over the following two years to Rs 30 lakh crore by March 2028.
The scale of the expansion matters because gold occupies a distinctive place in household finance. For many families, jewellery is not simply an asset on a balance sheet. It can be pledged quickly to meet an emergency, fund a business requirement or manage a temporary cash-flow gap. India Ratings’ Jinay Gala told Reuters that gold may be the principal financial asset for households in smaller cities. In urban areas, the report said, some borrowers use larger gold loans for working capital or income generation.
That legitimate demand makes the sector difficult to assess through growth figures alone. Rising disbursements can indicate easier access to secured credit, but they can also reflect households and enterprises under pressure. The distinction is particularly important when new loans are used to settle overdue obligations elsewhere.
Piramal Finance managing director and chief executive Jairam Sridharan said during the company’s second-quarter earnings call that between 15% and 23% of industry gold loan disbursements in FY26 went to borrowers who were already more than 90 days overdue on at least one other loan. He estimated the value of such disbursements at Rs 4.7 lakh crore, according to Reuters. The figure does not establish that these loans have become bad loans. It identifies a borrower pool with potentially higher repayment vulnerability.
Sridharan also said Piramal Finance does not lend to customers who are more than 90 days past due on other loans. Such customers accounted for less than 1% of the company’s own gold loan disbursements so far in October, he said. The distinction between an industry estimate and one lender’s underwriting practice is important: the available evidence points to a risk in the market, not to uniform behaviour across all lenders.
Ganapathy told The Times of India that collections teams at some lenders could be directing overdue borrowers towards gold loans to settle existing dues. If that practice is widespread, the apparent expansion of credit may partly represent a transfer of debt between institutions. A borrower may clear one overdue account by pledging jewellery without gaining any additional income with which to repay the new obligation.
This is the central analytical problem in the current gold loan cycle. Collateral improves a lender’s recovery position, but it does not automatically improve the borrower’s cash flow. A gold loan used for working capital that generates income has a different repayment profile from one used to pay an overdue personal loan. The collateral may be identical, while the underlying financial condition is not.
The regulatory framework is also changing the structure of the market. The RBI’s revised Lending Against Gold and Silver Collateral Directions, issued in June 2025 and effective from April 1, 2026, created a common framework for regulated lenders. The earlier uniform 75% loan-to-value ceiling was replaced with a tiered structure: lenders can offer up to 85% of the value of eligible gold collateral for loans up to Rs 2.5 lakh, 80% for loans above Rs 2.5 lakh and up to Rs 5 lakh, and 75% for larger loans.
The directions also limit consumption-focused bullet-repayment loans to 12 months. These rules affect both the amount borrowers can raise and the manner in which loans must be repaid. For smaller borrowers, the higher permitted loan-to-value ratio can increase immediate access to funds. For lenders, it makes valuation, documentation, monitoring and collections central to the quality of growth.
The regulatory change arrives as more institutions enter the business. Tata Capital announced the acquisition of an 88.6% stake in Yogakshemam Loans in July, while Godrej Capital later bought the gold loan business of Kanakadurga Finance. These transactions provide operating platforms in a market where developing a branch network and local appraisal capability from scratch can take time.
Aditya Birla Capital planned to establish 200-300 dedicated gold loan branches by March 2027, with a longer-term target of around 1,000 branches, according to an Economic Times report cited in the article. L&T Finance also planned to add 500 gold loan branches during the current financial year. The expansion shows how lenders are seeking growth in a secured product while competition increases beyond traditional specialists.
A larger branch network can improve access, particularly where gold is one of the few readily pledgeable household assets. It can also intensify pressure to acquire customers and increase disbursements. New entrants must build systems for gold appraisal, custody, repayment monitoring and auctions while competing with lenders that have longer experience in local markets. The quality of those systems will matter as much as the quantity of branches.
Gold collateral provides a buffer, but it is not a complete safety net. A lender can sell pledged jewellery after a default, which can limit losses compared with an unsecured loan. However, recovery depends on the value of the collateral, the volume and timing of defaults, and the ability to conduct auctions and realise proceeds. Macquarie’s Ganapathy warned that a sharp fall in gold prices occurring alongside rising defaults could test lenders’ recovery assumptions.
The RBI’s loan-to-value limits are intended to preserve a margin between the loan amount and the assessed value of the gold. That margin can narrow if gold prices fall sharply after disbursement. The risk is not that a price correction would automatically create widespread losses. It is that falling collateral values and worsening borrower repayment capacity could arrive together, increasing pressure on lenders at the same time.
Early delinquency data will therefore be more informative than headline disbursement growth. Bajaj Finance has said that its rise in early delinquencies was largely linked to short-tenor products and that it does not expect the deterioration to affect credit costs materially. The company has stopped offering those schemes and has favoured addressing repayment risks early rather than relying on auctions. This indicates that at least some stress may be connected to product design rather than a broad-based deterioration across the entire market.
The available evidence does not establish that India’s gold loan market is facing a systemic crisis. It does show that the sector is entering a more demanding phase. Growth has been rapid, regulatory requirements have changed, new lenders are investing in distribution, and a significant share of industry disbursements has reportedly involved borrowers already overdue on another loan.
For cities and households, the larger issue is the quality of accessible credit. Gold loans can support emergencies, small businesses and income-generating activity, especially where formal borrowing options are limited or slower. But if new borrowing mainly postpones existing distress, the growth of secured lending can conceal weakness in household and small-enterprise finances.
The next few quarters will show whether early delinquencies migrate into non-performing assets, whether lenders tighten underwriting and whether the industry can distinguish productive borrowing from debt refinancing. The key measure of the boom will not be how much gold is pledged, but whether borrowers have the income and cash flow to repay without losing it.
