The gold loan market in India has witnessed an unprecedented boom, surging 122% year-on-year to ₹2.94 lakh crore as of July 2025. According to the Reserve Bank of India (RBI), lending against gold jewellery grew from ₹1.32 lakh crore in July 2024 to ₹2.94 lakh crore in July 2025. This growth is the fastest among all personal loan segments and has been fueled by rising gold prices, eased regulations, and changing borrower behavior.
Rising Gold Prices Drive Demand
As of September 26, 2025, the price of 24-karat gold in India stood at approximately ₹1.13 lakh per 10 grams, according to the India Bullion and Jewellers Association Ltd. Experts point to several factors behind the price surge. Global instability has driven investors toward gold as a safe-haven asset, while supply and demand trends have further pushed prices up. Central banks worldwide are buying gold as part of risk diversification strategies, while cultural and consumer demand in India remains strong. These combined factors have made gold an attractive investment and a preferred collateral for loans.
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Changing Borrower Patterns for Gold Loans
The rise in gold prices has directly impacted the loan market. Borrowers can pledge jewellery for higher loan amounts, making gold loans a convenient and strategic option. Regulatory changes by the RBI in late 2023, such as raising risk weights on unsecured personal loans like credit cards, increased their cost and limited their availability. As a result, many borrowers shifted to gold-backed loans.
Gold loans are now popular among urban millennials, semi-urban households, small traders, and farmers. They are used for weddings, business expansion, education, and emergencies. Seasonal borrowing is also common: traders often take loans during festivals to stock goods, while farmers rely on them during the monsoon season. Experts report that demand has grown at a 30–40% CAGR annually, reflecting sustained interest.
Accessibility for Low-Credit Borrowers
One of the most significant advantages of gold loans is accessibility. Since loans are secured against pledged jewellery, borrowers with poor or no credit history can access funds. The RBI allows up to 85% loan margin for small borrowers on loans under ₹2.5 lakh (including interest). Past credit history is not a strict requirement, making gold loans ideal for low-credit borrowers seeking formal financial access.
Managing Price Fluctuations
Rising gold prices often lead to top-up loans, allowing borrowers to take additional credit without pledging extra jewellery. This benefits traders and farmers who can leverage price appreciation. However, falling gold prices create risks. Borrowers may need to add more ornaments or repay part of the loan to maintain the loan-to-value (LTV) ratio. Lenders monitor price movements daily and alert borrowers via calls and SMS when adjustments are required.
RBI’s Guidelines on Collateral
The RBI has clarified the eligible collateral for gold loans. Gold jewellery continues to be allowed, while gold ETFs and similar instruments remain excluded. Silver has been added as an eligible security. Experts describe this move as a reinforcement of existing rules rather than a restriction, harmonizing lending guidelines across regulated entities.
Benefits of Gold Loans
Gold loans offer multiple advantages: quick processing, lower interest costs compared to unsecured loans, flexible repayment options, and accessibility for low-credit borrowers. Interest is generally calculated on a daily diminishing balance method, with tenure, margin, and borrower profile influencing the rate. Loans can be structured with monthly installments, bullet payments, or overdraft facilities.
Risks in Gold Loans
Despite their benefits, gold loans carry risks. Borrowers who fail to repay on time risk auction of pledged jewellery, including ancestral assets. Price dips may require additional pledges or partial repayment. High-risk borrowers may face higher interest rates. Lenders typically issue multiple reminders over 40–60 days before auctioning jewellery.
Conclusion
India’s gold loan market has surged to ₹2.94 lakh crore, reflecting 122% year-on-year growth, driven by record gold prices, regulatory support, and changing borrower behavior. Gold loans are now mainstream financial tools, offering liquidity, accessibility, and lower costs than unsecured credit. However, borrowers must remain cautious of price volatility and repayment obligations.
The story of gold loans is now closely tied to the story of gold itself. As long as prices continue to rise, demand for gold-backed loans is expected to remain high across households, businesses, and rural communities.
