JPMorgan: Gold Loans to Double Share in India’s Credit System

Gold loans are emerging as one of India’s fastest-growing retail credit products. JPMorgan projects their share of the system’s credit will reach approximately 10% in the next five years, a substantial increase from the current 5% and 2% in FY24.

The Driving Factors Behind Gold’s Ascent

Several key factors are fueling this rapid expansion in the gold loan segment. Rising gold prices directly enhance borrowers’ capacity to secure larger loans against their collateral.

• Gold loans offer significantly cheaper borrowing costs, providing a 300-600 basis point advantage over unsecured personal and business loans.
• Borrowers benefit from easier access and quicker processing times for funds.
• There is a growing willingness among households to monetize unused jewellery for diverse needs, including education, medical emergencies, or business working capital.

Shifting Dynamics in Retail Lending

This evolving preference is clearly reflected in recent retail credit disbursement trends. Gold loans captured a notable portion of the market, indicating a shift in consumer behavior.

• Gold loans accounted for 41% of retail credit disbursements in FY26.
• This represents a significant rise from 18% in FY23.
• Conversely, unsecured loans observed a decline in their share during the same period.

Lender Advantages and Market Potential

Despite the rapid growth, JPMorgan assesses the market as far from saturation, suggesting considerable untapped potential. Lenders find gold loans particularly attractive due to their inherent lower credit risk.

• Only about 11% of gold held by lower-income households is currently pledged.
• Gold loans boast the lowest bad-loan ratio among major retail credit categories, standing at approximately 0.2%.
• This low risk is primarily attributed to the collateralized nature of the loans and conservative loan-to-value (LTV) ratios, typically maintained between 55-65%.

Evolving Perception and Regulatory Impact

The perception of gold loans is transforming from a last-resort option to a mainstream secured credit instrument. This allows households to access necessary funds while retaining ownership of valuable family possessions.

JPMorgan has initiated coverage on major gold-focused Non-Banking Financial Companies (NBFCs) like IIFL Finance, Manappuram Finance, and Muthoot Finance with an “overweight” rating, anticipating structural growth. Regulatory adjustments, including tiered LTV caps effective April 2026, are expected to have a broadly neutral impact on established NBFCs that already operate conservatively. Borrowers are, however, cautioned about repayment risks, as failure to honor obligations can lead to the auction of pledged gold; comparing interest rates and fees across lenders remains crucial.