Exploring the Win-Win Benefits of Gold Loans for Companies and Consumers
Behind the remarkable surge in gold loans in India lies a significant shift in how families perceive their ancestral jewellery. Once viewed primarily as a last resort for financial distress, pledging family ornaments has now become a strategic move to unlock the value of gold and reduce business financing costs. Recent data reveals that the landscape of gold loans is evolving, with a notable decrease in smaller borrowings and an increasing trend among micro, small, and medium enterprises (MSMEs) seeking affordable financing options.
Changing Perceptions of Gold Loans
Historically, gold loans were predominantly associated with smaller amounts, specifically those under Rs 2.5 lakh, which accounted for 60% of the market. However, recent statistics from credit bureau CRIF indicate a shift in this trend. By fiscal year 2025, the share of loans below Rs 2.5 lakh dropped to 51%, and in the first eight months of the current fiscal year, only 40% of loans fell within this range. This change reflects a broader acceptance of gold loans as a viable financial tool rather than a sign of desperation. Shripad Jadhav, head of Bharat Banking at Kotak Bank, notes that the appeal of gold loans lies in their ability to provide single-digit interest rates, making them an attractive option for many borrowers.
Gold Monetisation Scheme: A Missed Opportunity
In 2015, the Reserve Bank of India (RBI) introduced a gold monetisation scheme aimed at encouraging individuals to deposit idle gold in banks for interest. However, the scheme faced significant challenges, primarily due to the requirement that ancestral jewellery be melted down into bullion. Many owners viewed this as a loss of artistic value, leading to the scheme’s lack of success. In contrast, gold loans have effectively tapped into the desire for liquidity without the need to alter the physical form of the jewellery. Jadhav emphasizes that while the trend of wearing jewellery may have declined, the desire to own gold remains strong, positioning gold loans as a practical alternative for those looking to leverage their assets.
Gold Loans on the Rise
As the demand for gold loans continues to grow, experts predict that they will soon surpass loans against property, becoming the second-largest loan category after home loans. Jadhav points out that the process for obtaining a gold loan is significantly simpler and faster compared to property loans, with requirements being only a fraction of those needed for property-based financing. This ease of access has made gold loans particularly appealing to MSME owners, with 40% of borrowers now seeking these loans to fund their businesses rather than as emergency measures.
Market Potential and Profitability
According to a Morgan Stanley report from October 2025, India possesses approximately 34,600 tonnes of gold, valued at around Rs 550 lakh crore. In contrast, the total value of gold loans in the country is estimated at Rs 15 lakh crore, with Rs 25 lakh crore worth of gold pledged as collateral. This discrepancy highlights the vast potential for growth in the gold loan sector. Additionally, the profitability of gold-loan non-banking financial companies (NBFCs) is bolstered by low credit costs, which have historically remained below 1% over the past five fiscal years. Prashant Mane, director at Crisil Ratings, notes that the collateralized nature of these loans, combined with the high liquidity of gold and established auction processes, contributes to their stability and attractiveness in the financial market.
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