Bigger Gold Loans Mean Higher Default Risk in India

The gold loan market in India is witnessing an uptick in delinquency, with borrowers who secure larger or multiple loans showing a higher propensity to default. As of December 2025, individuals with outstanding gold loan amounts exceeding ₹2.5 lakh demonstrated a delinquency rate of 1.5%, which is approximately 2.2 times greater than that of borrowers with lower exposures. This concerning trend is further amplified among those accumulating more than five loans, where the delinquency rate reached 1.9%.

These figures are particularly noteworthy given that gold loans, now accounting for 11% of India's retail credit portfolio, have seen substantial growth. This expansion is fueled by strong demand from small businesses and a surge in gold prices observed in the previous year. However, lenders are becoming more cautious as gold prices have retreated from their peaks, experiencing a 15% correction in March 2026 alone following geopolitical events.

To mitigate risks associated with price volatility, lenders are maintaining conservative loan-to-value ratios, typically between 60-65%, a decrease from the earlier regulatory 75% prescription. Despite the collateral's importance, experts emphasize the need for a more holistic borrower assessment, considering total indebtedness, repayment capacity, and credit behavior. The data suggests that for some stressed borrowers, gold loans might be serving as a last resort, increasing their risk of exiting the formal credit system.