Gold loans emerge as fastest growing segment in personal lending: Report

Rising gold prices have enabled borrowers to unlock greater loan amounts using their gold assets as collateral

Gold loans have become the fastest-growing category within personal loans, skyrocketing 71 percent year-on-year as of December 27, 2024, according to the Reserve Bank of India (RBI). The total gold loan portfolio held by banks climbed to Rs 1.7 lakh crore, marking a 68.3 percent rise in the current financial year alone, as per a report in the Times of India.

As per analysts, cited in the report, there are three primary drivers behind this surge. Firstly, regulatory changes have spurred a shift from non-banking financial companies (NBFCs) to banks, with banks now commanding 82 percent of the market share as of October, leaving NBFCs with just 18 percent. Secondly, rising gold prices have enabled borrowers to unlock greater loan amounts using their gold assets as collateral. Lastly, financial strain on households has led to increased reliance on secured gold loans, even as demand for unsecured personal loans remains muted.

In the wider personal loan landscape, credit card outstandings rose 15.6 percent to Rs 2.9 lakh crore. Home loans continue to dominate bank credit with Rs 29.3 lakh crore in outstanding loans, though growth decelerated to 11.1 percent year-on-year. Meanwhile, loans for consumer durables were the only segment to contract, declining slightly by 1.1 percent.

The RBI data further revealed that non-food credit totaled Rs 172.5 lakh crore as of December 2024, reflecting an overall increase of 11.1 percent year-on-year. The agriculture sector contributed 12.5% to this growth, adding Rs 1.67 lakh crore to the credit pool. Personal loans, despite a slightly slower growth rate of 12%, contributed the most to overall credit expansion due to their substantial size, standing at Rs 58 lakh crore and adding Rs 4.6 lakh crore over the past year.

Conversely, credit growth in the industrial sector remained tepid. Outstanding loans to the sector reached Rs 38.5 lakh crore, up just 7.2 percent year-on-year. Borrowing by large industries saw an even more modest increase of 5%, indicating persistent challenges within the sector.