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In India’s gold loan market, default rates are increasing among large and multiple borrowers. TransUnion CIBIL said this trend of borrowers borrowing more than they can afford has increased the credit risk at such high exposure levels. However, lenders usually hope to recover their entire outstanding amount by auctioning the gold pledged with them.
At the end of December, the default rate among borrowers who owed more than Rs 2.5 lakh was 1.5 per cent – about 2.2 times higher than borrowers with less exposure, the credit information company said in a report. Among those who had taken more than five loans, the default rate was even higher at 1.9 percent. According to this report based on loans given in the first half of 2025, the average default rate was 1.1 percent.
Of these, about 48 percent of collateral-backed borrowers have an average gold loan outstanding of more than Rs 2.5 lakh. According to the report, the special thing is that among the borrowers who have an outstanding of more than Rs 2.5 lakh, about 46 percent have more than five loans, which increases their chances of defaulting.
price improvement
The data showed that gold loans – which is India’s second largest retail loan market after housing finance – constituted 11 per cent of India’s total retail credit portfolio at the end of December; This has almost doubled from the figure of 5.9 percent in March 2022. Bhavesh Jain, Managing Director, TransUnion CIBIL, said that as the gold loan segment is growing, the priority for lenders should be to strike a balance between growth and caution.
According to Crif High Mark data, at the end of December, India’s total gold loan market was worth Rs 16.2 lakh crore, while housing loans were worth Rs 43 lakh crore. The main reason for this surge in gold loans is the strong demand from small businesses and the tremendous rise in gold prices last year, which enabled borrowers to get bigger loans against their mortgaged items. However, as gold prices fell below their record levels, lenders became cautious. Immediately after the Iran War started on February 28, gold prices fell by 15 percent from their highest level in the month of March itself.
enough protective cover
However, lenders stressed that they have enough cushion despite the fall in prices. This is also because they generally adopt a loan-to-value ratio of 60-65 percent compared to the previous regulatory rule of 75 percent. Jain said the strength of the collateral remains important, but it cannot be the sole parameter for valuing borrowers. Lenders will need to make a more holistic assessment of the borrower’s total debt, repayment capacity, recent credit behavior and cross-lender exposure.
The number of people not repaying loans is high
The latest report shows that borrowers who already have a history of serious delinquency in repaying loans and who later become dependent on gold loans are at a higher risk of being excluded from the formal credit system. The rate of loss of access to credit for such borrowers was approximately 1.6 times higher than for borrowers who did not repay their loans. This shows that for a section of borrowers burdened with debt, gold loans are now increasingly acting as the last option.
Value increased more than 5 times
Bank of Baroda Chief Economist Madan Sabnavis said that after the sharp fall in prices, banks are monitoring the gold loan portfolio on a real-time basis. The value of new gold loan issuances has increased 5.1 times since April 2022, while the average loan amount (ticket size) has more than doubled from Rs 90,000 to Rs 1.96 lakh in the same period. The report said this growth reflects the fact that more borrowers are adopting gold loans, the average loan amount is increasing, more lenders are entering the space, and the borrower profile now includes consumers and women with longer credit histories.
