Why Gold Loans Are Becoming the Go-To Option for Borrowers in 2025
Gold Loans Witness Massive Growth Amid Retail Credit Slowdown
The gold loan segment continues to shine as banks recorded a 76% year-on-year (Y-o-Y) growth in January 2025. This surge comes as retail credit expansion slowed down, particularly in the unsecured loan category, following the Reserve Bank of India’s (RBI) decision to increase risk weights on such loans in November 2023.
Strong Momentum in Gold Loan Portfolio
The gold loan segment, which had already seen a 17.4% Y-o-Y rise in January 2024, maintained its upward trajectory. RBI data reveals that “loans against gold jewellery” under retail lending reached ₹1.78 trillion as of January 24, 2024. Since September 2024, the segment has been experiencing over 50% Y-o-Y growth each month.
Retail Loan Growth Slows to 14.2%
While gold loans soared, overall retail loan growth slowed to 14.2% in January 2025, down from 18.2% a year ago. The slowdown was primarily due to reduced demand in:
- Other personal loans (unsecured credit): Growth fell sharply from 20.8% to 9.2%
- Vehicle loans: Declined from 16.4% to 9.7%
- Credit card outstanding: Growth slipped from 31.3% to 13%
- Home loans: Moderated slightly to 15.5% from 16.6%
Why Are Borrowers Opting for Gold Loans?
Bankers suggest that borrowers are increasingly turning to gold loans as an alternative after banks tightened norms on unsecured loans. The decision to increase risk weights on personal loans in November 2023 made small-ticket loans riskier, leading lenders to become more cautious.
Industrial Loan Growth: A Mixed Bag
The industrial loan segment experienced moderate improvements:
- Overall loan growth in the industry sector increased to 8.2% from 7.5% a year ago.
- Micro and small industry loan growth declined from 16% to 9.5%.
- Large industry loan growth showed marginal improvement, rising to 6.4% from 5.7%.
- Medium-sized industries saw a notable jump, with growth reaching 18.5% from 10%.
Among the top industries receiving credit, the following sectors saw accelerated growth:
- Petroleum, coal products, and nuclear fuels
- Basic metal and metal products
- Chemicals and chemical products
- Engineering sector
Services Sector & NBFCs Face Credit Growth Moderation
The services sector’s credit growth slowed to 13.8% from 21% in January 2024. A key reason for this decline was reduced credit flow to non-banking financial companies (NBFCs), which dropped to 7.7% from 15.6%.
Agriculture Loan Growth Also Declines
Agriculture and allied activities also witnessed a slowdown in loan growth. The segment grew at 12.2% in January 2025, down from 20% a year earlier.
Gold Loans Shine as Credit Growth Moderates
With banks tightening their lending norms for unsecured loans, borrowers are increasingly leveraging gold as collateral for financial needs. While the overall retail loan growth has slowed, gold loans continue to gain momentum, providing a safer and more accessible borrowing option for individuals.
