From 'last-resort' to first choice: India’s gold loan market poised for 26% growth by FY26

India’s gold loan market has emerged from its traditional “last-resort” image to become a mainstream credit option, with industry experts projecting sustained growth through 2026. Structural shifts, regulatory clarity, and product flexibility are driving expansion, even as rising gold prices introduce new risks for lenders.

According to Adhil Shetty, CEO and Co-Founder of BankBazaar.com, “Higher gold values have expanded usable collateral, while wider access to formal credit and faster digital processing have helped households and MSMEs borrow more efficiently. Even if prices stabilise, the ongoing shift from informal to regulated lending supports sustained growth.”

Secular growth, not just cyclical demand

Gold loans have grown beyond short-term credit demand.

Shaji Varghese, CEO of Muthoot FinCorp, points to the product’s unique advantages: low entry costs, flexible repayment options, and short-term tenures.

“Unlike personal loans, which typically carry 2% processing fees and rigid EMI schedules, gold loans allow part-prepayment or prepayment at any time without penalties. Bullet schemes further help borrowers with seasonal income, such as farmers, repay in one shot after harvest,” he explains.

The formal sector still accounts for only 30–35% of gold lending, leaving 60–65% in informal channels. Experts note that as formalisation increases, the market is set for steady, long-term growth.

Regulatory tailwinds boost borrower confidence

The RBI’s tiered loan-to-value (LTV) framework and operational relaxations are reshaping borrower behavior, especially among rural households and MSMEs.

By raising LTV limits—up to 85% for smaller loans—the central bank has enabled borrowers to access higher liquidity with fewer barriers.

Mukesh Pandey, Director of Rupyaa Paisa, notes, “The higher LTVs, coupled with relaxed credit underwriting for smaller loans, allow MSMEs and rural borrowers to tap formal credit more efficiently. This change, combined with stable regulations, creates a favorable environment for lenders and borrowers alike.”

Gold prices and risk management in 2026

Gold prices, which surged 40–60% between late 2024 and 2025, have increased borrowers’ leverage, heightening asset-quality risks.

BankBazaar’s Shetty cautions, “When gold prices rise quickly, many households borrow near the maximum LTV, leaving a thin buffer if prices correct. Even a 5–7% dip can strain high-LTV loans, particularly for MSMEs with uneven cash flows.”

Lenders are responding with refined risk models and collateral buffers.

“Stress tests need to factor in sharper price swings. Flexible LTV rules, faster valuations, and tighter monitoring of early warning signals—like frequent top-ups and interest-only renewals—will be crucial,” Shetty adds.

Varghese concurs, highlighting the cushioning effect of existing LTV practices.

“While the maximum permitted LTV is 75%, the effective LTV across portfolios is around 65%, leaving a healthy margin to absorb moderate price corrections. Combined with additional costs like making charges, consumers are unlikely to default even if prices fluctuate moderately.”

Market size and future outlook

India’s gold hoard stands at roughly 25,000 metric tons, valued at over $2.5 lakh crore, or nearly five times the nation’s GDP.

Analysts project the gold loan industry to grow at a CAGR of around 26%, reaching an estimated ₹15 lakh crore by FY26, signaling robust structural expansion.