Bank gold loan disbursals up 71.3% to Rs 1.72 trillion in 9MFY25

Gold loan portfolio of banks rose by 71.3 per cent year-on-year (Y-o-Y) till December of the current financial year (FY25) to Rs 1.72 trillion, compared to 17 per cent growth a year ago, on the back of rising prices of the yellow metal and slowdown in unsecured loan following increase in risk weights last year.

 

“Over the last year, gold loan growth has sharply increased, with a 68 per cent rise from April 2024 to December 2024 (M9FY25), while gold prices increased by around 21 per cent during the time,” said Ajit Velonie, senior director, Crisil Ratings.

 

“There has also been a partial slowdown in unsecured loan growth due to stricter regulations. The growth in gold loans has coincided with this period. Personal loans grew by only 5-6 per cent, compared to 16.5 per cent in the previous year. The slower growth in unsecured loans has likely led borrowers to turn to gold loans as an alternative,” said Velonie.

   

In November 2023, the Reserve Bank of India (RBI) increased risk weight for unsecured loans by 25 percentage points to 125 per cent.

 

The personal loans segment showed 9.7 per cent growth in December 2024, compared to 20.8 per cent in December 2023. Credit card loans also saw moderation in growth at 15.6 per cent in December 2024, down from 32.6 per cent a year ago.

 

Bank credit growth in the retail loan segment, including housing, vehicle, credit cards, and personal loans, dropped to 14.9 per cent Y-o-Y in December 2024, down from 17.6 per cent in December 2023.

 

The gold loan prices increased by 20.4 per cent to Rs 75,857 per 10 gram in December 2024 from Rs 62,993 per 10 gram in the year-ago period. 

 

“Factors contributing to the rise in gold loans include rising prices of the yellow metal, as the value of loans taken against jewellery also increases amid rise in gold prices. People with gold jewellery are also borrowing more to refinance their loans as the value of gold increases,” said Kirti Timmanagoudar, head of strategy and co-lending, IIFL Finance.

 

“The crackdown on unsecured lending and stress in the MFI space might also be contributing factors. It is likely a cumulative effect of these elements, rather than one factor being responsible,” said Timmanagoudar.

 

According RBI data, since May 2024, one bank has changed the classification of agricultural loan into “Loans against gold jewellery” under the retail segment.

 

“Loans previously classified as agricultural are now being treated as gold loans. This reclassification might explain the slower growth in agricultural loans, which have only grown by 8 per cent compared to previous years,” Timmanagoudar added.

 

“The slowdown in supply of unsecured lending might give an impetus but gold loan has been witnessing an upward trajectory due to its own features. Today it is a popular choice among customers, especially for short-term requirements, and acts as a vital financial inclusion tool,” said Shaji Varghese, chief executive officer (CEO), Muthoot FinCorp.

 

The December edition of the financial stability report (FSR) of the RBI observed the rapid increase in gold loan disbursals during the period ending September 2024 compared to the same time period last year.

 

To address the non-adherence to prudential guidelines by the supervised entities (SEs) in grant of loans against pledge of gold ornaments and jewellery, the RBI has advised SEs to comprehensively review their policies, identify gaps, and implement corrective measures within a specified timeframe.