Gold Loans swell to ₹16.8 lakh crore, concerns about defaults rise concurrently

New Delhi: Southern states account for more than half of these loans, and now account for 11% of total retail credit loans: TransUnion CIBIL report

With gold prices rising through the roof, gold’s reputation as a safe-haven commodity made it a convenient asset to pawn for emergency cash. A comprehensive study by TransUnion CIBIL has revealed that gold loans have surged to a staggering Rs. 16.8 lakh crore, growing 3.8 times since March 2022.

This record-breaking rise has also raised concerns about the risk of defaults, as rising delinquency could become an issue amongst high-ticket borrowers.

The Southern Stronghold

The growth has been led by Southern states- Tamil Nadu, Karnataka, and Andhra Pradesh- accounting for more than 50% of the total gold loan originations in the country.

The robust network of Non-Banking Financial Companies (NBFCs) and cooperative banks issuing these loans have been at the center of this growth. According to the report, women account for 39% of the borrowers, often utilizing the credit for household emergencies or running small businesses. 

Ticket Sizes Double as Defaults Loom

With the price of gold now crossing the six-figure mark, this has led to not just more people borrowing, but people borrowing more, with the average ticket size for gold loans now reaching approximately Rs. 2 lakh. 

While gold loans are traditionally seen as safe due to the collateral given, this can often lead to forced auctions in the case that the borrower cannot repay the loan on time. 

With gold loans now behind home loans in the retail lending sector, there are concerns that the rising threat of default could have wider implications for the financial ecosystem, even as the ‘gold rush’ continues.