The below article is authored by Priyank Kothari, Director of Arvog
The recent RBI report on sectoral deployment of bank credit mentions a growth of 71% year-on-year (YoY). Undoubtedly gold loans are the most popular and easy to avail credit form, this piece entails the reasons for such enormous growth across consumer segments nationwide.
The Fast Growth of Gold Loans in India
Gold loans have emerged as the fastest-growing category within personal loans in India, witnessing an unprecedented 71% year-on-year growth as of December 2024, according to the latest report released by Reserve Bank of India (RBI). This represents a significant leap from the 17% growth recorded in the previous year. By contrast, individual borrowings against fixed deposits (FDs) and shares showed more modest increases of 19% and 22%, respectively, during the same period. The rapid rise of gold loans underscores their growing popularity as a reliable and accessible credit option for Indian borrowers.
One of the key factors contributing to this explosive growth is the inherent nature of gold loans as secured loans, making them easier to access for both lenders and borrowers. Unlike unsecured loans, gold loans require minimal documentation and offer a faster approval process since they are backed by a tangible asset—gold. This dual benefit of convenience and security has made gold loans an attractive option for individuals seeking quick financial relief.
Factors Driving the Growth of Gold Loans
Several factors have fuelled the rising demand for gold loans in India, particularly over the past year. Two primary reasons stand out:
- Rising Gold Prices
The surge in gold prices has been a major driver of gold loan growth. Higher gold values allow borrowers to unlock larger loan amounts using their gold assets as collateral. In India, gold holds a deeply entrenched socio-economic significance. Beyond being a valuable asset, it serves as a safeguard against inflation and a quick source of cash, particularly for rural households.
In rural India, gold is not just an investment but a financial lifeline. Many households view gold as a dual-purpose asset: a form of savings and a readily accessible resource to meet unexpected financial needs. With gold prices on the rise, the potential loan amounts available against gold collateral have increased, making this form of credit even more appealing.
- Increasing Financial Strain on Households
Another key factor contributing to the rise of gold loans is the mounting financial pressure on Indian households. This strain can be attributed to several factors, including the shift toward more aspirational lifestyles driven by consumerism. As incomes remain stable or grow at a slower pace, and expenses continue to rise, many households find themselves grappling with financial gaps.
In such scenarios, gold loans often emerge as a beacon of hope. These loans provide a quick and secured way to bridge the gap between stagnant or reduced incomes and escalating expenditures. Unlike unsecured personal loans, which often require a strong credit history and come with higher interest rates, gold loans offer a relatively affordable and accessible alternative, especially for those facing financial distress.
Additional Factors Boosting Gold Loan Popularity
Beyond these primary drivers, several other factors have contributed to the growth of gold loans in India:
- Regulatory Changes: Stricter regulations on unsecured loans have led to a partial slowdown in their growth. This has prompted many borrowers to consider gold loans as a viable alternative.
- Flexible Loan Terms: Gold loans often come with flexible repayment options, allowing borrowers to repay in installments or as a lump sum. This flexibility has made them particularly attractive to individuals with irregular income streams.
- Improved Access to Financial Institutions: The increasing penetration of financial institutions, including banks and non-banking financial companies (NBFCs), in semi-urban and rural areas has made gold loans more accessible to a wider demographic. The availability of digital platforms has further simplified the loan application process, enabling faster approvals and disbursals.
- Trust and Familiarity: In a country where gold is culturally and emotionally significant, people feel more comfortable leveraging their gold assets for loans compared to other forms of credit. This trust factor has played a crucial role in the sustained popularity of gold loans.
- Lower Interest Rate: Being a secure form of credit, the rate of interest on gold loans is usually lower than any other loan.
The remarkable growth of gold loans in India is a testament to their increasing relevance in meeting the financial needs of individuals and households. As a secured and accessible form of credit, gold loans offer a practical solution to various financial challenges, from unexpected emergencies to lifestyle aspirations. The rising gold prices, coupled with the growing financial strain on households and stricter regulations on unsecured loans, have further amplified their appeal.
Looking ahead, the gold loan segment is poised for continued growth as more people recognize its benefits and financial institutions expand their reach. With its unique blend of cultural resonance, financial security, and convenience, the gold loan industry is set to remain a vital pillar of India’s credit ecosystem, empowering individuals and households to navigate their financial journeys with confidence.
Arvog is a new-age, AI/ML-powered, customer-centric finance company that makes digital lending quick, efficient, and easy. We see worth in in lending wings to people’s aspirations, hopes and dreams. We believe purpose-driven credit can be a true-life enabler. Arvog is here to lend a helping hand, with affordable loans designed specifically for those who need them the most.
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