The gold lending market across India is undergoing a major transformation as more and more people and small businesses turn their gold jewellery into a source of quick credit. And the trend could have much longer to run, with gold loans increasing their share of India’s credit system to about 10% over the next five years, JPMorgan said.
Gold loans currently account for around 5% of system credit, compared to only 2% in FY24. JPMorgan believes that in the next five years it could triple its share as borrowers prefer secured gold-backed loans to low-cost unsecured loans.
The brokerage has described the trend as a structural shift in India's retail lending market. It has initiated coverage on big gold-focused NBFCs like IIFL Finance, Manappuram Finance and Muthoot Finance, giving them an “overweight” rating.
Why are gold loans being taken on so much?
One of the major reasons for the increasing demand for gold loans is their lower cost than unsecured personal loans. JPMorgan estimates that borrowers can benefit from a rate difference of about 300-600 basis points or 3-6 percentage points when choosing gold-backed credit over certain unsecured borrowing options.
Unlike a personal loan, a gold loan is secured by physical gold pledged by the borrower. This reduces the lender’s credit risk and can allow borrowers to access funds without entirely depending on their credit score.
Gold jewellery has traditionally been considered to be a property for the family and is reserved for family occasions or emergencies. However, the availability of gold-backed credit has changed the way Indians perceive their jewellery. Gold is becoming more and more a financial asset that can be monetised when cash is required.
Gold loans can be obtained to pay for short-term expenses (education, medical, travel or other household needs). Small businesses can also use such loans to pay for working capital requirements.
Gold Loans Taking Share From Personal Loans
JPMorgan points to a marked change in the composition of retail credit. In FY26, gold loans accounted for a little under 41% of retail credit disbursements, compared to 18% in FY23.
At the same time, the total share of unsecured personal and small-business loans has dropped from around 55% in FY23 to 41% in FY26. This indicates that some borrowers are increasingly turning to secured borrowing against gold.
The substitution is clearly significant for sub-prime borrowers who may pay higher interest rates when they get unsecured credit. For those borrowers, pledging gold may be a way to get financing in a much less expensive way.
India Still Has Large Untapped Gold Loan Potential
Despite the rapid growth of the sector, JPMorgan believes only a relatively small portion of India’s household gold is currently being used as collateral.
The brokerage estimates that about 11% of the gold in households in the bottom 60% of the income distribution is pledged. NBFCs account for only about 3% of that pledged gold, suggesting substantial room for organised gold lenders to grow.
JPMorgan also challenges the view that southern India is already a saturated market. The region accounts for almost 40% of India’s household gold holdings, but gold-loan penetration is widely comparable with other parts of the country.
That would provide gold-financing companies with huge scope to expand their customer base, even in regions that are normally associated with gold lending.
Gold Loans Have Relatively Low Bad Loans
Another factor supporting the growth of gold-backed lending is asset quality. JPMorgan said gold loans had one of the lowest bad-loan ratios among major retail credit categories.
The brokerage estimates the bad-loan ratio for gold loans is about 0.2%– compared with approximately 0.5-0.6% for mortgages and auto loans. Unsecured credit products have had bad-loan ratios of more than 1%.
The relatively good asset quality is linked to the collateral backing the loans. Lenders generally provide only a portion of the market value of the pledged gold, providing a margin of safety if the borrower defaults.
What about gold prices and LTV rules?
Gold lenders typically maintain loan-to-value ratios or LTVs that are used as a buffer in the event of a downturn in gold prices. JPMorgan said that gold-NBFCs have generally operated at conservative LTV levels of about 55-65%.
Recent regulatory changes in lending against gold, effective from April 2026, have led to tiered limits on headline LTV, and collateral valuation requirements have been increased.
JPMorgan expects these changes to be broadly neutral for established gold-focused NBFCs because many of them already operate with relatively conservative lending practices.
A Structural Shift in Indian Borrowing
Thus, the general trend highlights that Indian households are even more willing to use their existing assets to meet liquidity needs. Rather than taking expensive unsecured loans, borrowers with gold jewellery can use it as collateral and may be able to access credit at a lower cost.
Lenders are also able to use the model with physical collateral for secured loans. For borrowers, it is another way to raise funds without selling their gold permanently.
JPMorgan's prediction that gold loans could reach around 10% of India's system credit over the next five years highlights the scale of the opportunity. If the trend continues, gold could increasingly be used in place of the old store of wealth and become a major source of household and small-business financing.
But a borrower should still compare interest rates, processing charges, repayment terms, LTV limits and other costs before pledging their jewellery. A gold loan is a financial liability, and failure to repay in the lender’s terms could ultimately put the pledged gold at risk.
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