From Jewellery Box to Loan Ledger: How Gold is Powering India’s Credit Boom

Gold has always been more than just a metal in India — it’s sentiment, security, and status. But increasingly, it’s also becoming serious capital. This article is based on the information stated by credible reports published by ET BFSI, AngelOne, The Times of India, and Hindustan Times.

Earlier this year in Kochi, Priya Menon, a 38-year-old boutique owner, needed ₹4 lakh to restock inventory before the festive rush. Instead of opting for a traditional business loan, with its paperwork and processing delays, she pledged 250 grams of gold jewellery, worth roughly ₹15 lakh. 

Within an hour, her bank sanctioned the loan at an interest rate of 9.5%, no income proof required. She repaid the amount in ten months, and her gold came back to her, intact and untouched.

Read More – How to Make Money from Gold in 2025 Without Buying Physical Gold

Stories like Priya’s are becoming common as more Indians turn to gold-backed credit. 

And now, the trend has reached the top: the Reserve Bank of India (RBI) has quietly boosted its gold reserves, signalling a national shift in financial strategy.

In March 2025, the RBI had increased gold holdings by 25 tonnes (in only six months), bringing total reserves to 879.59 metric 

tonnes. This action raised gold's proportion in India’s foreign exchange reserves from 9.3% to 11.7%, and it's already having a rippling effect on the retail loan market.

Gold Reserve Strategy: Numbers and Facts from the RBI

As global uncertainties rise, the RBI’s increased gold reserves reflect its strategy to diversify India's forex assets. By raising the stock of gold holdings, the RBI greatly strengthens India’s financial position in highly volatile global markets. 

What's Behind the Gold Loan Boom?

Gold loans are trending, and that's because of the following reasons:

Increasing Gold Prices

Gold prices have skyrocketed by 122% over the past five years, allowing borrowers to unlock greater value from their gold. In 2020, the cost of gold was ₹40,000 per 10 grams (Hindustan Times). In 2025, it had already surpassed ₹89,000 per 10 grams. (Alice Blue Online).

Regulatory Push

The RBI decision to reclassify some rural gold-backed loans as agricultural credit has increased official numbers, providing a win-win situation for lenders as well as borrowers.

Crackdown on Unsecured Loans

The RBI made banks costlier to provide unsecured personal loans in November 2023 by increasing risk weights. Thus, both banks and borrowers started shifting towards secure, safer options like gold loans.

Gold Loans: India's Fastest-Growing Retail Credit Segment

Gold loans have seen a huge jump. Bank lending against gold reached ₹2.1 lakh crore as of March 2025 — over two times the ₹1.03 lakh crore last year. That's 103% growth year on year. The given table shows the comparison between the gold loans and other retail loan categories:

Regional Trends and the Rise of Organised Lending

Gold loan disbursements are witnessing a regional shift. Though South India is still ahead, other states in the country are witnessing accelerated growth, thanks to formalisation and digital access.

NBFCs vs Banks: A Market Control Shift

The Indian gold loan market, traditionally dominated by Non-Banking Financial Companies (NBFCs) such as Muthoot Finance and Manappuram Finance, is now observing a definitive shift towards banks.

Key Factors Driving the Shift:

• Regulatory Changes: RBI's restrictions on excessive gold lending activities by big NBFCs in early 2024 have pressured their growth.

• Bank's Attractive Offers: Banks now provide competitive interest rates, quicker digital lending, and improved regulatory supervision, which makes them a desirable choice for borrowers.

   

With the increasing regulatory tightness and the emergence of digital lending platforms, banks are increasingly capturing market share, whereas the traditional players, such as NBFCs are witnessing slower growth.

Going Forward: Will Gold Loans Keep Up The Momentum?

India’s gold loan market is growing fast, and staying on this path comes with both challenges and opportunities.

Challenges

When gold prices drop unexpectedly, the value of the pledged jewellery drops, making it harder for lenders to recoup funds. (LinkedIn)

Lenders keeping all their eggs in one basket (i.e., gold loans alone) may be in trouble if demand is slack or asset quality weakens.

As gold loans are increasing at a fast pace, the RBI has already begun to tighten norms to prevent excessive risk. (Financial Express)

Opportunities

During inflation, gold retains its value, and that is why more individuals view gold loans as a prudent choice. (Bajaj Finserv)

Online gold loan apps and instant gold valuation apps are making loans quicker and simpler, particularly in smaller cities. (Aditya Birla Capital)

Also Read - India’s Gold Loan Boom in FY25: Why Everyone’s Betting on Yellow Metal Credit

As a component of financial inclusion, more and more individuals are being encouraged toward formal loans, such as gold-backed loans. (World Gold Council)

Conclusion: A Metal That Moves the Market

India's gold-backed credit bubble is no longer merely a consumer trend — it's a reflection of changing national priorities. As the Reserve Bank of India added 25 tonnes of gold reserves in just six months, gold has crossed the line from sentiment to strategy. 

This build-up of reserves has strengthened India's foreign exchange buffer and rewired retail lending patterns around the nation.

Borrowers, banks, and policymakers are increasingly aligned in recognising gold’s potential as a stable, secure financial instrument. From small-town entrepreneurs to major financial institutions, gold drives a wave of liquidity without the risks associated with unsecured lending. 

With digital platforms making it easy to access and regulatory oversight tightening, gold loans will play an increasingly important 

part in India's credit system. Whether in a jewellery case or a central vault, gold is powering a quiet financial revolution — and the momentum is far from over.

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