In an unexpected divergence within India’s financial system, the fiscal year ending March 2025 witnessed a dramatic surge in gold-backed loans, even as overall credit growth decelerated. According to Reserve Bank of India (RBI) data, loans against gold more than doubled, rising by 103% from just over ₹1 lakh crore to nearly ₹2.1 lakh crore. This made gold loans the fastest-growing segment in the Indian credit market, outpacing all other lending categories.

This sharp growth in gold-backed lending occurred against the backdrop of slowing overall bank credit, which grew at 11% in FY25, down from a robust 20% in FY24. The contrast highlights both the resilience of asset-backed borrowing during times of economic strain and the evolving financial preferences of Indian households and small businesses.

Three key factors drove this boom:

1. Regulatory Reclassification by the RBI: In 2023, the RBI issued a directive requiring banks to reclassify many agricultural loans as loans against gold jewellery. This not only improved transparency but also artificially inflated the category’s growth figures. Banks traditionally prefer to label rural gold loans as agricultural credit to take advantage of lower interest rates and lenient repayment norms attached to farm lending.
2. Shift from NBFCs to Banks: Another major catalyst was the RBI’s move to curb gold lending by large non-banking financial companies (NBFCs), which had become dominant players in the sector. With regulatory limits in place, borrowers—especially those in rural and semi-urban areas—began shifting back to traditional banks for their gold loan needs.
3. Gold Price Appreciation: The continued rise in gold prices significantly boosted the borrowing capacity of individuals. Since loans are typically offered as a percentage of the gold’s market value, higher prices meant that customers could secure larger loan amounts without pledging more jewellery.

The explosion in gold loan volumes reveals much about the Indian financial ecosystem. On the one hand, it suggests increased financialisation of household assets, particularly gold, which has long been a preferred store of wealth in Indian society. On the other hand, it points to underlying financial stress, as households appear to be leveraging personal assets to meet liquidity needs in a slowing economy.

At a systemic level, the phenomenon underscores the interplay between regulatory decisions and credit flows, demonstrating how RBI’s interventions can redirect borrowing channels. While the gold loan segment soared, the broader deceleration in credit—from 20% to 11% year-over-year—raises concerns about investment appetite and consumption momentum, especially in key sectors like industry, infrastructure, and MSMEs.