The currency of taking loans against gold is increasing rapidly in India. Due to rising gold prices and easy availability of loans, banks and non-banking financial companies (NBFCs) are growing rapidly in this business. But now questions are being raised on other aspects hidden behind this boom. Are people taking gold loans to meet their needs or are they mortgaging their gold to repay the loan installments they have already taken?

Question on ability to repay loan

According to a Times of India (TOI) report, Macquarie has expressed concern that part of the rising demand for gold loans may come from customers who are already facing difficulties in repaying other loans. Bajaj Finance and Piramal Finance have also raised concerns about the repayment capacity of some borrowers.

According to Reserve Bank of India (RBI) data, by July 31, 2026, Gold jewelry Loans against loans increased by 88.1% year-on-year to Rs. 5.52 lakh crores. The increase was 136.4% a year ago. This means that the gold loan business is still growing rapidly, but at a slightly slower pace than before.

According to a Reuters report, by 31 August 2026, Gold Loan It is approximately Rs. 5.6 lakh crore, while gold loans of NBFC companies rose to Rs. 3.6 lakh crores. NBFCs’ gold loans recorded a 69% year-on-year growth.

New loans are being taken to repay old loans

The biggest concern with the gold loan business is customers who are already behind in their loan repayments. According to Piramal Finance, 15% to 23% of the total gold loans disbursed in the industry in FY 2025-26 were given to customers who defaulted on at least one installment of another loan for more than 90 days. According to Reuters, such loans amount to around Rs. 4.7 lakh crore is estimated. However, this does not mean that so many gold loans have gone bad. This figure only reflects the situation of borrowers who are already under repayment pressure.

This matter can be easily understood by an example. Suppose a person has taken a personal loan and his installments are due. He can take a new gold loan by pledging the gold with a bank or finance company. This may clear his old dues, but if his income does not increase, he may find it difficult to meet new installments in the future. Thus, taking one loan to pay another loan cannot be a permanent solution to the problem. According to Macquarie, some lenders’ recovery staff may also suggest the option of taking a gold loan to customers to pay off arrears.

Is taking a gold loan risky?

Gold loan itself is not a bad or risky loan. It is used to meet sudden financial needs of the family, raise capital for medical treatment, children’s education and small businesses. For many families in small towns, gold is one of their most important possessions. At the same time, some businessmen take loans against gold to expand their operations or meet their daily expenses. The specialty of gold loan is that the customer pledges gold in return. If he is unable to repay the loan, under the rules the lender can try to recover the amount by auctioning the pledged gold. Due to this, chances of loss on gold loan are less as compared to any unsecured personal loan. But this does not mean that lending companies cannot incur losses.

If the price of gold falls, the problems may increase

Gold prices are very important for gold loan companies. If the price of gold falls sharply after taking a loan and at the same time a large number of customers stop repaying the loan, the difficulties for the companies may increase. In such a situation, it is not always possible to recover the full amount from the auction of the pledged gold. Auctioning large quantities of gold can also put pressure on revenue from its sale if many customers default on payments at once. However, under RBI rules, the difference between the loan amount and the value of the gold pledged is maintained. Its purpose is to provide some protection to the lender in the event of a fall in the price of gold.

What changes did RBI make in gold loan rules?

RBI In June 2025, it released new guidelines for lending against gold and silver. These rules came into force from 1 April 2026. Under the new rules, the loan limit is fixed according to the loan amount and the price of gold. The maximum loan amount on loans up to 2.5 lakhs will be 85% of the gold value. Up to 80% loan on loans between 2.5 lakhs to 5 lakhs. Maximum loan amount will be 75% on loans above 5 lakhs. Apart from this, the tenure of lump sum gold loan for personal needs has been kept to a maximum of 12 months. The purpose of these rules is to regulate the credit process and control the risks of both the lender and the customer.

New companies are entering the gold loan business

Seeing the increasing demand in the gold loan market, many new companies are also increasing their presence in this sector. Tata Capital announced in July to buy an 88.6% stake in Yogkshemam Loans. After this Godrej Capital bought the gold loan business of Kanakadurga Finance. Aditya Birla Capital plans to open 200 to 300 gold loan branches by March 2027, according to an August report in the Economic Times. The company’s long-term target is to reach around 1,000 branches. At the same time, L&T Finance plans to add 500 gold loan branches in the current financial year. One of the reasons companies are interested in gold loans is that gold is pledged against the loan. But in the rush to grow business rapidly, if companies do not properly check the ability of customers to pay, future risks may increase.

By March 2028, the market may reach 30 lakh crore rupees

According to a recent ICRA report, the gold loan market is set to grow by over 30% in the next two years to reach Rs. 30 lakh crores can reach. However, the actual strength of the market will not be determined solely by the increase in loan amount. It also needs to be seen how many customers are able to repay the loan on time and how many people are taking new gold loans to repay old loans. Bajaj Finance has said that the main reason behind the delay in loan repayment at the initial stage was some short-term loan products. The company has discontinued these plans and believes that they are unlikely to have a major impact on the cost of debt.