KOCHI: India's gold-loan market may be sitting on a mountain of untapped collateral.
Onky less than one-tenth of the country's estimated household gold holdings is currently pledged for loans, suggesting enormous headroom for a market that is already expanding at a rapid pace.
The organised gold-loan market is projected to reach Rs16 lakh crore in FY26, up 33-36 per cent from about Rs12 lakh crore a year earlier, according to Muthoot Finance, India's largest gold-loan company. Yet only about 2,950-3,350 tonnes of the estimated 34,600 tonnes of gold held by Indian households is currently being used as collateral, the company said.
That means the formal gold-loan market has so far tapped only a fraction of the gold lying with households — a factor that could sustain the industry's expansion well beyond the current growth cycle.
The nature of borrowing against gold is also changing. Gold loans are increasingly moving beyond emergency borrowing, with micro and small businesses using them for inventory purchases, business expansion and routine working capital, according to Muthoot.
Gold is consequently emerging less as an asset to be monetised in distress and more as a readily available source of business finance.
A key driver of this shift has been the narrowing gap between the cost of gold loans and other forms of credit. As banks have expanded aggressively into gold loans, competition has intensified and pricing has become increasingly competitive with personal loans and, in some cases, credit available to small businesses.
New entrants include Tata Capital
The growing acceptance of gold as collateral is also attracting new players. Existing gold-financing companies are expanding their loan books, banks are strengthening their presence in the segment, while new entrants are seeking a foothold. Tata Capital's acquisition of a majority stake in Yogakshema Gold Loans is among the latest indications of the growing institutional interest in the business.
For lenders, the attraction is obvious: gold-backed lending combines a large and largely untapped collateral base with relatively short loan tenures and the ability to recover value from the underlying security in case of default.
For borrowers, the appeal lies in the speed and accessibility of credit. Unlike many unsecured loans, gold loans do not depend entirely on a borrower's income profile or credit history, while the collateral reduces the lender's credit risk.
The result is a market that is expanding simultaneously on both sides — more lenders are chasing gold, while more borrowers are becoming comfortable with pledging it.
Muthoot's own numbers illustrate the acceleration. Its standalone gold-loan assets under management jumped 44 per cent year-on-year to Rs1,63,298 crore in the first quarter of FY27.
But the more important number for the industry's future may not be the Rs1.63 lakh crore already lent by the market leader. It is the tens of thousands of tonnes of household gold that remain outside the formal credit system.
As banks and NBFCs compete to unlock that pool, gold lending could increasingly move from being a specialised financing product to a mainstream component of India's retail and small-business credit market.
