Gold loans disbursed by banks saw almost two-fold growth in FY 25, rising by 103 per cent, from over Rs 1 lakh crore to almost Rs 2.1 lakh crore. This has made gold loans the fastest-growing segment among all types of loans offered by banks, even as the overall growth in bank lending showed a decline during this period.
Incidentally, this increase in gold loans is concurrent with bank credit growth showing overall signs of slowing down. Bank lending as a whole increased only 11 per cent in FY25, a fall from the 20 per cent increase in the previous year. Even when adjusting for the effect of the merger of HDFC with HDFC Bank, the adjusted growth rate was 12 per cent in FY25, a decline from 16.3 per cent in FY24, according to a report in the Times of India.
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A number of factors are being cited responsible for the sudden spike in gold loan disbursals. First, in n 2023, the Reserve Bank of India (RBI) released new guidelines mandating banks to reclassify numerous agricultural loans as gold loans. This shift saw a sudden surge in the reported number of gold loans. Two, curbs imposed on big non-banking financial companies (NBFCs) over the past few years impacted their lending against gold. Consequently, a large number of borrowers who would have otherwise approached NBFCs approached conventional banks for such loans.
The other major factor was the ongoing increase in gold prices. As the price of gold increased, individuals could borrow more against an equal value of jewellery. This further made gold loans a better choice for those needing funds, particularly in rural and semi-urban pockets.
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Since the transition, gold loans represent 1.1 per cent of total bank credit, nearly twice the 0.6 per cent share that they had one year ago.
While gold loans expanded at a record rate, other segments of the lending sector experienced slower growth or even a dip. Lending to industries expanded at only 6.2 per cent, pulling down overall credit growth. The industry’s proportion in overall bank credit dipped to 21.5 per cent, while lending to the services sector increased to 28.3 per cent.
Personal loans continued to be the biggest part of credit from banks, amounting to 32.6 per cent of total loans. These include a mix of consumer borrowing, such as gold loans, which significantly contributed to this segment's growth in FY25.
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Housing loans too had a consistent proportion of 16.5 per cent in the overall loan book, with the total portfolio of loans amounting to Rs 30.1 lakh crore. Apart from gold loans, another rapidly growing segment was loans against securities, which increased by 18.7 per cent to Rs 10,080 crore.
Conversely, certain categories of personal loans fell. Consumer durable loans—TVs, refrigerators and washing machines—fell by 1.3 per cent to Rs 23,402 crore. Banks have turned cautious in extending unsecured loans, which is evident from the reduced growth of “other personal loans” that increased by just 7.9 per cent year-on-year.
While the overall rate of lending by banks slowed down in FY25, gold loans stood apart with its accelerated growth. It reflects changing borrower behaviour and lending strategy adjustment of banks, with people increasingly turning to their jewellery to meet their urgent financial needs.
