Gold Loans Surge in India Amid AI Demand and US Debt Pressure

The Indian economy is experiencing a shift towards gold-backed loans as households use their gold holdings as collateral to access credit for consumption and business needs. This trend is driven by a financial advantage, with gold-backed loans often carrying interest rates approximately 3% lower than traditional personal loans. Public sector lenders project their gold loan portfolios to cross ₹1.5 trillion by the end of FY27.

The growth in AI demand has led to increased corporate spending, funded largely through debt, which has pushed long-term US Treasury yields to multi-year highs. This makes borrowing more expensive for companies and governments worldwide. In contrast, India's domestic economy is seeing a rise in gold-backed loans, providing liquidity while introducing credit risk for banks.

The Reserve Bank of India will closely monitor the impact of this trend on bank portfolios and consumer sentiment as energy prices remain high due to geopolitical friction. Brent crude prices are trading between $86 and $90 per barrel, affecting profit margins for manufacturing and logistics companies in India.