Gold loans increase by 50% in the first seven months of FY25

As per Reserve Bank of India (RBI) data on Sectoral Deployment of Bank Credit in October 2024, released on Friday, November 29, outstanding gold loans increased by 50.4% in the last 7 months from ₹1,02,562 crore as of March 22 to ₹1,54,282 crore as of October 18, in the current fiscal year (FY25). These outstanding gold loans depict the loans taken by banks against gold jewellery. The year-over-year (YoY) growth stood at 56.2%, higher than the 13.1% recorded in October 2023.

What drove the growth in gold loans?

Bankers suggest that the growth in gold loans in the first seven months of the current fiscal year can be attributed to many factors including a change in preference from unsecured loans to secured loans as well as a move away from non-banking financial companies (NBFCs), according to several media reports. Loans to NBFCs stood at ₹1.5 lakh crore in the first seven months, marking a drop of 0.7%.

The increase in gold prices has also encouraged bankers to take new gold loans by repaying the old ones. The RBI last month asked banks and financial institutions to review their gold loan policies, directing them to work on the deficiencies and resolve them in the next three months.

Why has gold been on the rise?

Gold prices have been rising in the current fiscal year, peaking and touching their all-time high of ₹80,000 in the Diwali season near the start of November.

The significant rise in gold prices since the beginning of the fiscal year has been driven by factors such as global uncertainty and market volatility. Since gold is a safe haven, the price of the yellow metal increases during unpredictable geopolitical situations and fluctuations in currencies.

The price of gold increased by almost 30% between Diwali 2023 and the festive season in 2024, as per Confederation of All India Traders (CAIT) data.

Gold prices started to drop after the festive highs and observed a 2.6% dip in the month of November. However, Russia-Ukraine escalations, Donald Trump's win in the US presidential elections and the upcoming wedding season have resulted in an upward trend for gold prices again.

Other loan categories

Personal loans have grown modestly, with home loans increasing by 5.6% in the seven-month period. The total value of banks' home loan portfolios hit ₹28.7 lakh crore, reflecting a 12.1% year-on-year increase. This growth was notably lower as compared to the 36.6% rise in October 2023.

Credit card outstanding also increased by 9.2% to ₹2.81 lakh crore. Other personal loans along with unsecured loans showed a slower growth rate, with an increase of just 3.3%.

Moreover, overall bank credit grew by 4.9% to reach ₹172.4 lakh crore in the first seven months of FY25. Credit to the industrial sector also saw an increase of 3.3%.