Gold loans are not ‘easy money’ in a volatile market

Driven by soaring global prices and across-the-table lending, the gold loan market has exploded, expanding almost 4 times in just four years. This surge has made gold loans the second-largest retail credit category in India, according to the Gold Loan Landscape Report by TransUnion Cibil in April 2026. With a total stock of ₹16 trillion, gold loans trail only housing loans.

Tamil Nadu, Andhra Pradesh, and Karnataka lead in gold loan origination, as per the report.

Given this, the increase in ticket sizes and higher borrowing capacity, stress signals are starting to emerge. While gold loans have become popular, they could also turn out to be a liability for households, given the risk of margin calls when the value of gold depreciates.

Based on the report, for gold loans taken in the first half of 2025, overall delinquency was 1.1%. The stress is notably higher among large-ticket borrowers, with gold loans exceeding ₹2.5 lakh, as they have a delinquency rate of 1.5%. This is more than double the 0.7% rate seen in those with smaller loans. The story explores some of the risks embedded in gold loans and why you need to be cautious.

How the gold loan books bulged

The primary catalyst behind the gold loan explosion is the spike in the price of the underlying asset. Since March 2023, gold valuations have doubled, expanding the borrowing capacity of Indian households. Bloomberg data on the MCX Gold Index displays that gold prices rose 57% since May 2025, reaching a high of ₹1,76,306 in January 2026. This appreciation has enabled existing borrowers to leverage the same ornaments for significantly higher credit limits.

Bhavesh Jain, MD and CEO of TransUnion Cibil, explains the correlation: “One of the critical factors driving gold loan growth is the sharp rise in underlying asset values. There is a direct correlation between the price and the ticket size.” The average ticket size has more than doubled, from ₹90,000 in early 2022 to ₹1.96 lakh by late 2025, according to the report. Beyond valuation, the ‘convenience factor’ has played a significant role. Jain notes that today’s borrower can walk into a credit institution and receive a disbursement ‘literally across the table’.

NBFCs managing liquidity

While public sector undertakings (PSUs) continue to hold the highest share by value, 40% in 2025, non-banking financial companies (NBFCs) have emerged as the aggressive leaders in fresh originations. NBFC disbursement growth reached 189% year-over-year in the October to December 2025 quarter, noted Abhinav Thakur, head of Data and Analytics at Equifax India.

Senthil Kumar R., MD and CEO of Nitstone Finserv, attributes this edge to agility. “The turnaround time in the disbursement of gold loans is done within minutes. The documentation is minimal, with repayment flexibility. NBFCs also have a better understanding of informal customers and can tap into the huge potential of tier II and tier III markets,” he explained.

NBFC's are able to facilitate repayment flexibility through bullet repayments, interest-only servicing, and part-payments, among others.

To manage the liquidity required for such rapid growth, NBFCs utilize a mix of internal funds, commercial bank borrowings, co-lending, and institutional bonds. Thakur noted that Equifax manages liquidity risks by adjusting LTV ratios or raising loan costs for higher-risk borrowers.

“Lenders proactively reduce the LTV ratio to create a wider safety cushion against price drops. Using margin money provisions helps protect against market downturns,” Thakur added. He also pointed to hybrid products that combine metal collateral with minimal cash deposits to optimise the cost of funds.

RBI directives withdrawn

The rapid expansion led the Reserve Bank of India (RBI) to introduce stricter regulations in early 2026, though these were later withdrawn. The proposed framework had included a tiered LTV structure. “This would have required lenders to continuously monitor the LTV, including the principal plus interest payable. The call for credit assessment for loans above ₹2.5 lakh was a move to ascertain the repayment capacity of the borrower,” Senthil Kumar noted.

“A formal credit assessment for customers availing gold loans over ₹2.5 lakh would have been a welcome move. While it might lead to a slower disbursal process for high-ticket loans, it strengthens the sector by protecting both the customer and the lender,” Thakur said.

Stress signals

There is a growing trend of borrowers taking multiple parallel loans, leading to increased leverage. The average outstanding per borrower has climbed from ₹1.9 lakh to ₹3.1 lakh, as per the Cibil TransUnion report.

The data shows a concerning pattern for stressed borrowers, that gold loans have become the ‘product of last resort’. Defaulting borrowers using gold loans as a last resort are 1.6 times more likely to be cut off from the credit system entirely.

Cushioning the correction

The most significant risk is a correction in gold prices. Since the valuation of the loan is directly linked to the market price of the precious metal, a drop in prices can trigger a ‘margin call’, requiring borrowers to either prepay a portion of the loan or pledge more gold to maintain the LTV ratio. Especially in March 2026, the prices had dipped over 12% to ₹1,33,513 and a 10% slip in prices over the last two months, according to Bloomberg data on the MCX Gold index.

“Whenever gold prices come down, the risk is that the margin gets reduced. Then, either they will sell your gold, or you have to pay the margin,” warns Pankaj Mathpal, founder of Optima Wealth Managers Pvt. Ltd. “When people need money, they borrow without considering this.”

Mathpal notes that the biggest danger lies in the psychological trap of thinking gold is an ever-ascending asset. “Most of the time, people say that gold prices don't come down. People consider that gold prices will always go up, similar to inflation, but that is not true, and one should be careful.”

Planner's take

For consumers, a margin call can make gold loans go from ‘easy money’ to a serious financial liability. “For a bank, that loan is an asset; for you, it is a liability,” Mathpal explained. “They try to convince you to take a loan because it's easily available, but you should only go for it when it is really needed. My suggestion is to keep a proper margin. If a bank offers you 70%, borrow less so that if prices drop, you can still manage the situation.”

He also draws a hard line on the purpose of borrowing. While essential needs like a child’s education fees make the cut as valid reasons, upgrades can be avoided. He believes the lenders must share the responsibility for safety. “Banks should guide and educate the individual, especially if the borrower is not well-versed in these risks.”

Cibil’s Jain echoes this view, stating, “As the gold loan segment expands, lenders’ priority must be to balance growth with prudence. Collateral strength remains important, but it cannot be the sole criterion for evaluating borrowers.”

Amol Joshi, founder of PlanRupee Investment Services, while acknowledging the risk is valid, points out factors that act as cushions for the borrower.

“Over a medium to long term, rupee depreciation acts as a support for gold prices in India. While we have seen gold falling globally, these drops are often cushioned over the long period in domestic terms,” Joshi explained. Another existing cushion is that lenders typically don't extend more than 75% LTV, leaving a 25% margin for safety.

Amol emphasises the deep emotional attachment Indians have with gold, "Gold has a special place in our hearts; it’s an emotional attachment. People don’t take it lightly. In the hierarchy of liquidation, mutual funds and shares go first, then FDs, then insurance. Once all of this is knocked off, then you come to gold.” The responsibility falls on both sides of the table: for lenders to improve borrower education and for consumers to distinguish between an essential lifeline and impulsive money choices. 

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