India's Gold Loan Demand Surges as Record Rates and Eased Lending Rules Boost Borrowing

Gold loan demand is surging across India, driven by record gold rates and clearer lending rules. The country's organised gold loan book has grown fourfold in five years, reaching ₹18.6 lakh crore by March 2023. This growth is not a sign of distress or fashion, but rather a rational response to two factors: rising gold prices and the relaxation of lending-to-value (LTV) ceilings.

The RBI replaced the flat 75% LTV cap with tiers in April 2023, allowing loans up to ₹2.5 lakh to go to 85%, between ₹2.5 lakh and ₹5 lakh to 80%, and above ₹5 lakh to remain at 75%. This change has a significant impact on small-ticket borrowing, where an extra ten percentage points can make all the difference.

Despite the growth in gold loan demand, only around 8% of India's gold holdings are pledged with organised lenders. The majority remains idle, waiting for the right opportunity to be monetised. This presents a significant opportunity for lenders to provide secured loans and help households manage their finances more effectively.