Gold Loans Skyrocket as Credit Growth Cools

In an unprecedented financial shift, Indians are increasingly turning to gold loans, with outstanding bank loans against gold more than doubling in the year to March 2025. According to RBI data, these loans surged by 103%, from just over Rs 1 lakh crore to nearly Rs 2.1 lakh crore, marking the fastest-growing segment in bank credit.

Driving Forces Behind the Gold Loan Boom

Several factors have contributed to this boom. A directive from the RBI in 2023 led to the reclassification of many agricultural loans as loans against gold jewellery, significantly inflating the numbers. Additionally, restrictions on gold lending by large non-bank finance companies have pushed borrowers towards traditional banks. The steep rise in gold prices has further enhanced borrowing capacity, as lenders offer funds based on the value of pledged jewellery.

Overall Credit Growth Loses Momentum

Despite the spike in gold loans, overall bank credit growth slowed to 11% in FY25 from 20% the previous year. Large industry remained a drag, with credit growth to the sector dipping slightly. The composition of bank lending continues to shift, with industry's share falling and services rising. Personal loans, aided by the jump in gold loans, now account for 32.6% of all credit.

Looking Ahead

As gold loans now make up 1.1% of total bank credit, nearly doubling their share from a year ago, the financial landscape is witnessing a significant transformation. Loans against securities also saw growth, while consumer durables experienced a dip, reflecting a cautious approach by lenders towards unsecured personal loans.