Everything is not going well in the gold loan market of India these days. The latest figures have issued a ‘red alert’ for this sector. The rate of default (non-repayment of loan) is increasing rapidly among customers taking large and frequent loans. According to the TransUnion CIBIL report, this trend of borrowers borrowing more than their capacity has taken the credit risk to a very high level. Generally, banks and companies used to think that if gold is pledged then the money is safe, but now the situation is changing.
Default figures increased the tension of banks According to the report of credit information company CIBIL, the default rate among customers whose outstanding is more than Rs 2.5 lakh has reached 1.5 percent. This is 2.2 times more than that of small loan takers. The most surprising thing is that among people who have taken five or more gold loans simultaneously, the default rate has been seen as high as 1.9 percent. According to the data for the first half of the year 2025, the average default rate has been 1.1 percent.
Borrowers trapped in debt trap Another worrying thing has come to light in the report. About 48 percent of the people who have pledged their gold have an average loan outstanding of more than Rs 2.5 lakh. At the same time, about 46 percent of the customers with outstanding balance of more than Rs 2.5 lakh have taken more than five loans. Higher loans and increasing dues are becoming the main reasons for their default.
Second largest market after housing finance The gold loan market in India has now expanded rapidly. By the end of December, it has become 11 per cent of India’s total retail credit portfolio, which was just 5.9 per cent in March 2022. Bhavesh Jain, managing director of TransUnion CIBIL, says that as this segment is growing, banks and financial institutions will have to strike a balance between growth and caution. According to the figures, the total gold loan market of India has become Rs 16.2 lakh crore.
Falling gold prices spoiled the game The huge rise in gold prices last year prompted people to take more loans. But as prices fell below record levels, lenders were left in tears. Especially after the Iran war started on February 28, a huge decline of 15 percent was recorded in gold prices in the month of March. This reduced the value of the pledged gold and increased the pressure to repay the loan.
Is your gold safe? Even though prices are falling, banks claim they still have a ‘cushion’. Companies are now maintaining a loan-to-value (LTV) ratio of only 60-65 percent instead of the old rule of 75 percent. That means, if the value of your gold is Rs 1 lakh, then you are being given a loan of only Rs 60 to 65 thousand. Experts believe that now mere collateral is not enough to give a loan, but the repayment capacity and credit history of the customer should also be thoroughly examined.
Gold loan is becoming the last option Another scary truth is that gold loan has now become the ‘last option’ for many people. The report suggests that people who are already trapped in other debts and have a bad credit record are finally resorting to gold loans. The risk of such people being excluded from the formal credit system is 1.6 times higher.
5 times jump in loan amount According to Madan Sabnavis, Chief Economist, Bank of Baroda, the bank is now monitoring the gold loan portfolio on a real-time basis. From April 2022 till now, the value of new gold loans has increased by 5.1 times. At the same time, the average loan amount i.e. ticket size has also increased from Rs 90,000 to Rs 1.96 lakh. The increasing participation of women and new consumers in this sector has not only made the market bigger, but has also created a new wall of risk.
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