The Reserve Bank of India’s clampdown on unsecured lending has forced banks and non-banking financial companies (NBFCs) to focus on secured lending products such as gold loans. With gold prices surging almost 25 per cent in the last one year, and lenders ramping up digital on-boarding steps, gold loans have surged in the 12 months ending June 2024.

Data from RBI and from quarterly reports of NBFCs shows that outstanding gold loans have grown 20-30 per cent in the last one year. Even as NBFCs dominate this segment, scheduled commercial banks alone have seen a 30 per cent YoY growth in gold loan outstanding as of June 2024 at ₹1,23,776 crore. In contrast to gold loans, unsecured credit, has seen slower growth. According to RBI data, the amount outstanding under ‘Other personal loans’ grew by 15 per cent YoY in June 2024, compared to 30 per cent YoY growth in June 2023. 

Further, month-on-month analysis of gold loan outstanding showed that growth was particularly sharp during Q1 of FY25 as May 2024 saw a 15 per cent rise in outstanding amount.

Similarly, in case of NBFCs, the largest gold financier Muthoot Finance saw a 23 per cent YoY growth in gold loan Assets Under Management (AUM) to ₹80,992 crore in June 2024. “The June 2024 quarter saw the highest-ever gold loan disbursement in any quarter,” the company said in its investor presentation. Manappuram Finance saw a 15 per cent YoY growth in gold loan AUM at ₹23,647 crore and Shriram Finance also saw a 23 per cent rise in gold loan AUM at ₹6,123 crore

Gold loans surged during the pandemic in 2021, when banks recorded 82 per cent YoY increase in outstanding loans against gold as of June 2021. But the growth tempered in 2023, only to rise again this year.

“Gold loans are the go-to product for meeting short-term and emergency requirements for personal or for business. The slowdown in the personal loans, unsecured business loans and microfinance loans has led to an increased demand for gold loans as borrower profiles would have similarities across these segments,” AM Karthik, Senior Vice-President & Co-Group Head, Financial Sector Ratings, ICRA, said.

The share of gold loan in total personal loans is at a 20-month high of 2.3 per cent as of June 2024, RBI data shows.

The asset quality is also deteriorating. ICRA’s analysis finds that loans overdue for more than 90 days in the gold loan segment stood at around 3.1% in June 2024, compared to ~2.9% in March 2024.

Ajit Velonie, Senior Director, CRISIL Ratings, said NBFCs have seen growth in gold loans AUM despite the shift away from cash disbursals following an advisory by the regulator. Historically, gold-loan NBFCs have seen negligible credit losses because of robust risk management practices and timely auctions of gold, he added.

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