New Delhi: Gold loans are rapidly emerging as one of India’s fastest-growing retail credit products, with households and small businesses increasingly using jewellery as collateral to access funds. JPMorgan expects the trend to continue and estimates that gold loans could account for around 10% of India’s system credit over the next five years, compared with about 5% currently and just 2% in FY24.

The brokerage has initiated coverage on gold-focused non-banking financial companies (NBFCs) including IIFL Finance, Manappuram Finance and Muthoot Finance, giving all three an “overweight” rating. JPMorgan’s report, titled “India Gold Lenders: The Credit Gold Rush”, describes gold loans as secured retail credit with strong growth potential and argues that the next phase of expansion could be structural rather than merely cyclical.

The changing preference among borrowers is being driven by a combination of rising gold prices, cheaper borrowing costs, easier access to secured credit and increasing willingness among households to monetise jewellery that would otherwise remain unused.

Gold loans gain ground over personal loans

One of the biggest factors behind the growth is the changing mix of retail credit in India.

According to JPMorgan, gold loans accounted for 41% of retail credit disbursements in FY26, compared with 18% in FY23. During the same period, the combined share of unsecured personal and small-business loans declined from 55% to 41%.

The numbers suggest that borrowers are increasingly considering gold-backed borrowing as an alternative to unsecured credit.

Gold loans are secured against physical gold, usually jewellery, which means lenders have collateral that can be sold if the borrower defaults. Personal loans, by contrast, are generally unsecured and therefore carry higher risks for lenders.

That difference is reflected in interest rates.

JPMorgan estimates that gold loans offer borrowers a 300-600 basis point advantage over unsecured personal and business loans. In other words, the interest rate can be around 3 to 6 percentage points lower, depending on the lender and borrower.

For borrowers looking for short-term funds, that difference can make gold loans considerably more attractive.

Rising gold prices increase borrowing capacity

The dramatic rise in gold prices has also played a major role.

When the value of gold increases, households can potentially borrow more against the same quantity of jewellery, subject to applicable loan-to-value limits.

This has helped increase the average size and value of gold-backed borrowing across India.

The trend is visible in broader industry data as well. Gold loan originations rose 45% in volume and 108% in value during the three months ended December 2025, according to credit-market data reported by The Economic Times. Gold loans accounted for 36% of retail originations by volume and 39% by value during that period.

Another analysis found that the average gold loan ticket size reached around ₹1.96 lakh in FY26, up 39% year-on-year and double the FY23 level of ₹98,000.

The increase highlights how higher gold valuations can translate directly into greater borrowing capacity.

India still has plenty of untapped gold

Despite the rapid growth, JPMorgan believes the gold loan market remains far from saturated.

The brokerage estimates that only around 11% of the gold held by the bottom 60% of households by income is currently pledged as collateral.

More importantly, NBFCs account for only around 3% of that pledged gold, suggesting that there is considerable room for specialised gold lenders to expand.

India’s enormous household gold holdings provide a substantial potential pool of collateral.

Gold is deeply embedded in household savings and wealth in India, particularly through jewellery. Much of this gold remains physically held by families rather than being actively used to generate financial returns.

The increasing availability of formal gold loans is changing that equation.

Instead of selling jewellery to raise funds, households can pledge it temporarily, borrow against its value and recover the jewellery after repaying the loan.

South India is not a saturated market

Southern India has traditionally been associated with gold lending, with the region holding nearly 40% of India’s household gold, according to JPMorgan.

However, the brokerage does not believe the region has reached saturation.

Its analysis suggests that gold loan penetration in southern India is broadly comparable with other parts of the country.

That could provide significant room for further expansion because the region already has a strong cultural relationship with gold ownership and a well-established network of gold-focused lenders.

For NBFCs, this creates an opportunity to expand both in established markets and in regions where formal gold-backed lending remains relatively underpenetrated.

Why borrowers are choosing gold loans

The appeal of gold loans extends beyond simply obtaining a larger loan.

Speed and convenience are important factors.

Borrowers can use existing jewellery as collateral rather than going through the extensive documentation and credit assessment often associated with unsecured borrowing.

This can be particularly useful when funds are needed quickly for expenses such as education, medical emergencies, travel or business working capital.

JPMorgan said rising financial literacy is also encouraging borrowers to monetise idle household jewellery for short-term liquidity requirements.

For small businesses, gold-backed loans can provide working capital without requiring the same level of financial documentation that may be expected for some other forms of business borrowing.

The trend is also particularly noticeable among sub-prime borrowers, who may face higher costs or limited access to unsecured credit because of weaker credit scores.

Gold loans offer lenders lower credit risk

The growth of gold loans is not just a borrower story. Lenders also have strong incentives to expand the segment.

JPMorgan said gold loans have the lowest bad-loan ratio among major retail credit categories, at around 0.2%.

That compares with roughly 0.5-0.6% for mortgages and auto loans and more than 1% for unsecured products.

The primary reason is collateral.

When a borrower takes a gold loan, the lender holds physical gold against the outstanding amount. If the borrower fails to repay, the lender can recover money by selling the pledged asset, subject to applicable rules and procedures.

This provides a degree of protection that unsecured lenders do not have.

Loan-to-value ratios provide a safety cushion

Another factor supporting the asset quality of gold loans is the conservative loan-to-value structure used by lenders.

JPMorgan noted that gold lenders typically operate with LTV ratios of around 55-65%, providing a buffer against fluctuations in gold prices.

For example, if the pledged jewellery is valued at ₹2 lakh, a loan substantially below the full value of the gold provides the lender with some protection if gold prices decline.

However, borrowers should not interpret this as eliminating risk.

A sharp fall in gold prices can reduce collateral coverage and potentially create additional pressure for borrowers and lenders, particularly where loan amounts are close to regulatory or contractual limits.

RBI’s new gold lending rules

Regulatory changes are also shaping the market.

Recent rules governing lending against gold came into effect from April 2026. The changes introduced tiered headline LTV caps while also tightening certain aspects of collateral valuation.

JPMorgan expects the regulatory changes to be broadly neutral for established gold-focused NBFCs because many of them already operate with relatively conservative LTV levels.

For lenders, compliance will remain important as the sector expands.

A larger gold loan market also means greater responsibility around valuation, storage, documentation, auctions and customer protection.

Gold loans moving beyond emergency borrowing

Gold loans were traditionally viewed by many households as a last resort.

That perception appears to be changing.

The combination of high gold prices and lower borrowing costs has made gold-backed credit more attractive for a wider range of financial requirements.

Instead of selling gold during a temporary cash-flow problem, borrowers can pledge jewellery and potentially retain ownership once the loan is repaid.

This is particularly relevant for households that regard jewellery as both a financial asset and an important family possession.

The transition from emergency financing to mainstream secured credit could therefore be one of the most important structural developments in India’s retail lending market.

NBFCs stand to benefit

JPMorgan’s positive view extends to specialised gold-loan NBFCs.

The brokerage initiated coverage on IIFL Finance, Manappuram Finance and Muthoot Finance with an “overweight” rating, pointing to the structural growth potential of the segment.

These companies have established branch networks and significant experience in evaluating and lending against gold.

As the market expands, scale could become increasingly important.

Lenders with strong networks, efficient gold appraisal systems, robust risk controls and competitive interest rates could capture a larger share of new borrowing.

The wider financial sector is also taking notice. Recent market activity has seen major corporate-backed lenders show increasing interest in the gold loan business, highlighting the attractiveness of the segment.

Risks remain for borrowers

The rapid growth of gold loans does not mean they are risk-free.

Borrowers must remember that their jewellery is collateral. Failure to repay the loan according to the agreed terms can ultimately result in the pledged gold being auctioned, subject to the lender’s procedures and regulatory requirements.

Interest costs also matter.

Although gold loans can be cheaper than many unsecured loans, the actual rate varies significantly between lenders, products and repayment structures.

Borrowers should therefore compare the annual interest rate, processing fees, valuation charges, foreclosure conditions and repayment schedule before pledging gold.

A borrower should also avoid taking a larger loan simply because higher gold prices make a bigger amount available.

What JPMorgan’s outlook means

JPMorgan’s forecast that gold loans could rise to around 10% of system credit in five years represents a significant expansion from the current level.

The brokerage’s thesis is based on a combination of structural factors rather than a single temporary trend.

Gold ownership in India is enormous, penetration remains relatively low among lower-income households, unsecured borrowing has become comparatively expensive and lenders have strong incentives to grow secured credit.

Together, these factors could sustain growth even if gold prices eventually stabilise.

However, the pace of expansion will still depend partly on gold valuations. Higher prices increase collateral values and can raise the amount borrowers can access, while a significant correction could have the opposite effect.

Conclusion

India’s gold loan market is undergoing a significant transformation, with JPMorgan predicting that its share of system credit could rise to around 10% over the next five years, from about 5% currently and 2% in FY24.

The growth is being fuelled by rising gold prices, cheaper borrowing compared with unsecured loans, greater financial awareness and increased willingness among households to use jewellery as collateral.

Gold loans accounted for 41% of retail credit disbursements in FY26, according to JPMorgan, while the average loan ticket has also increased sharply as gold valuations have risen.

For lenders, the segment offers the attraction of secured credit and relatively low bad-loan ratios. For borrowers, it offers quicker access to funds and potentially lower interest rates than personal or unsecured business loans.

Yet the growth also makes responsible borrowing important. Gold remains the collateral, and failure to repay can put valuable family assets at risk.

If JPMorgan’s forecast proves correct, gold loans could move even further into the mainstream of India’s formal credit system, transforming household jewellery from a largely dormant store of wealth into an increasingly active financial asset.