Why are gold loans gaining momentum?

India is home to nearly 25,000 tonnes of household gold, the highest in the world. Yet, only about 5% of this vast reserve is monetized through formal channels like gold loans, estimated at ₹12 lakh crore.

This presents a massive, untapped opportunity for lenders, and by extension, for investors seeking exposure to lending institutions and NBFCs that dominate this space.

Here’s what’s fueling this growth:

• Rising gold prices: Higher gold valuations mean better loan amounts for borrowers and stronger collateral cover for lenders. This enhanced value improves asset security, which is especially attractive in times of market volatility.
• Consistent demand from small businesses & retail borrowers: For millions of Indians, gold loans act as a financial lifeline, offering fast, collateral-backed capital with minimal paperwork. This relevance is amplified in rural and semi-urban markets where credit access is limited.
• Favorable risk profile: Gold loans exhibit low default rates, high recovery rates, and liquidity-rich collateral. This makes them more secure than unsecured loans, and an appealing product for financial institutions focusing on asset quality.
• Affordable credit alternative: Gold loan interest rates range between 10-24%, significantly lower than unsecured personal loans, which can exceed 30%. This affordability attracts both cost-conscious borrowers and cautious lenders.
• Increasing formalisation: Banks and NBFCs are expanding aggressively in this domain. Banks have doubled gold loan disbursals YoY, while NBFCs continue to report healthy CAGR in their gold loan AUM. This growing formal ecosystem is pushing borrowers away from informal sources like pawnbrokers.

The impact of the RBI’s new guidelines

In April 2025, the RBI introduced draft norms for gold loan practices. While these are designed to harmonize lending norms across banks and NBFCs, they do introduce short-term operational challenges.

The primary changes are:

• Loan-to-Value (LTV) adjustments: The LTV ratio may drop from 65-68% to 55-60% to account for accrued interest. Borrowers will now receive slightly lower disbursements for the same gold value, affecting NBFC disbursal strategies.
• Stricter renewals & top-ups: Bullet loans, which require lump-sum repayment now require full interest repayment before renewal or top-up, limiting borrower flexibility.

That being said, these adjustments won’t significantly dent NBFC profitability and may actually strengthen sectoral practices in the long run.

By enforcing better risk management and improved compliance, the RBI is paving the way for a healthier lending ecosystem.

For investors, this regulatory clarity and long-term structural soundness improve the case for including gold loan-exposed firms in a well-balanced smallcase portfolio.

You should choose a portfolios like PINC Momentum Fundamental that focus on stocks where visibility in earnings continue for next 4-6 quarters.

What does it mean for investors?

Gold loans stand at the intersection of a growing credit economy and a historically trusted asset.

In uncertain financial times, gold provides what other assets can’t, i.e., zero counterparty risk. This is why central banks around the world are stacking gold, pushing demand and prices up.

When central banks are buying gold aggressively, it’s a signal that institutions are seeking stability, and that gold’s role as an anchor asset is only getting stronger. As this sentiment grows, so does the value of gold-collateralized lending, creating a powerful feedback loop.

For investors seeking smart exposure to this theme, a smallcase investment in financial services or lending companies that are strong players in the gold loan segment can be a rewarding move.

Choosing the best smallcase company, help you not just invest strategically but also aligning your portfolio with trends that have both economic and cultural tailwinds.

With smallcase portfolio investment, you can:

• Access expert-curated, research-backed portfolios
• Avoid emotional biases in stock selection
• Stay aligned with high-conviction themes like financial inclusion, asset-backed lending, and gold monetization

Conclusion

The gold loan market, backed by India’s deep-rooted trust in the yellow metal, continues to be a bright spot for both lenders and investors in 2025.

Despite the RBI’s recent tightening of norms, the underlying fundamentals, such as rising gold prices, formalisation of lending, strong borrower demand, and sound risk profiles, remain intact.

These factors ensure gold loans will continue to shine as a lucrative, secure, and scalable lending product.

For investors, the opportunity lies not just in physical gold or commodities, but in financial institutions and instruments tied to this booming segment.

We at PINC Wealth are a wealth management advisory committed to helping you achieve your long-term financial goals through expert-curated portfolios, research-backed strategies, and active wealth planning. Start your investment journey today!