Gold Loans See 50.4% Jump Amid Financial Strain: Report

Total outstanding gold loans surged to Rs 1,54,282 crore by October 18, 2024, up from Rs 1,02,562 crore in March 2024. This marks a significant 56 per cent year-on-year increase

Bankers attribute this sharp rise to several factors, including a shift by borrowers from non-banking financial companies (NBFCs) to banks

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Bank loans secured against gold jewellery surged by 50.4 per cent in the first seven months of the current fiscal year, ending October 18, 2024. This sharp increase stands in stark contrast to the modest single-digit growth observed in other personal loan categories, according to data from the Reserve Bank of India (RBI).

Total outstanding gold loans surged to Rs 1,54,282 crore by October 18, 2024, up from Rs 1,02,562 crore in March 2024. This marks a significant 56 per cent year-on-year increase, compared to a more modest 13 per cent growth in October 2023.

Bankers attribute this sharp rise to several factors, including a shift by borrowers from non-banking financial companies (NBFCs) to banks, as well as a growing preference for secured loans over unsecured alternatives. In contrast, bank loans to NBFCs have seen a slight decline of 0.7 per cent, falling to Rs 1.5 lakh crore during the same period.

The rise in gold prices has further fueled the trend in gold loans. Bankers have pointed out that the increase in gold values offers borrowers an opportunity to repay older loans and secure larger amounts against their gold holdings. Some analysts believe the growing demand for gold loans may indicate financial distress among borrowers.

In light of concerns regarding lending practices, the Reserve Bank of India (RBI) has recently instructed banks and financial institutions to reassess their gold loan policies. The RBI has mandated that any necessary corrections be made within three months. This action follows a review that uncovered irregularities, including misclassifying non-performing loans.

Growth in other personal loan sectors has been more subdued. Home loans rose by 5.6 per cent, reaching Rs 28.7 lakh crore over the seven months, marking a 12.1 per cent increase year-on-year but a significant slowdown from last year’s 36.6 per cent growth. Credit card debt saw a 9.2 per cent uptick, reaching Rs 2.81 lakh crore, driven by a surge in online transactions. 

Meanwhile, other personal loans, including unsecured loans, posted a modest 3.3 per cent growth. Overall, bank credit grew by 4.9 per cent, totalling Rs 172.4 lakh crore, with industrial credit increasing by 3.3 per cent.