India’s gold loan boom: Why NBFCs are rushing to open 3,000 new branches

India’s gold loan market is entering a rapid expansion phase as non-bank lenders plan to open about 3,000 new dedicated branches over the next 12 months, The Economic Times reported on Tuesday.

The rush comes as the value of outstanding gold loans in India jumped 36% year-on-year to 14.5 lakh crore at the end of September, buoyed by record gold prices, rising demand for small-ticket credit and tighter scrutiny in the unsecured lending segment.

Why gold loans?

Gold loans are secured borrowings against jewellery, offered largely by banks, non-bank finance companies (NBFCs) and, in some cases, informal lenders.

Borrowers typically receive a percentage of the market value of the gold pledged, making the product less risky for lenders and quicker to disburse for customers.

India is the world’s biggest consumer of gold jewellery, surpassing China in 2024.

However, much of this gold remains idle, creating a large addressable lending market.

NBFCs lead the branch push

NBFCs such as Muthoot Finance, Muthoot Fincorp, Bajaj Finance and IIFL Finance are targeting deeper penetration in tier-2 and tier-3 cities, ET said.

• Bajaj Finance plans to open 900 branches by March 2027

• IIFL Finance aims for 500 by the end of this fiscal year

• Muthoot Fincorp expects to add 200 by March

• L&T Finance, which entered the segment in February, plans 200 new outlets this year

Newer entrants, including microfinance firms seeking more secured lending exposure, are also moving into the business.

Record prices, shifting credit behaviour

High gold prices have increased borrowing limits, making the product attractive for small traders, farmers and self-employed customers seeking working capital.

Demand has also been lifted by NBFCs and microfinance companies turning more selective with unsecured loans following asset quality concerns.

“The gold loan demand is rising like never before with many people failing to get unsecured micro loans looking to gold loan lenders to meet their fund requirement,” ET quoted Muthoot Finance Managing Director George Alexander Muthoot as saying.

Manish Mayank, head, gold loan business, IIFL Finance, said that nearly 70% of gold loans are used for agriculture and small businesses, with the rest funding consumption, home improvement, weddings or emergency needs.

Largely untapped market

Despite rapid growth, the formal gold loan sector remains underpenetrated.

A 2024 PwC estimate suggests that only 5.6% of the country’s household gold has been monetised through loans.

The organised segment accounts for just 37% of the market, while informal moneylenders hold 63%.

That gap is a key reason lenders are expanding physical networks and introducing digital onboarding, remote valuation services and fintech partnerships to acquire new borrowers.

Where demand is strongest

South India accounts for nearly 80% of outstanding gold loans. But lenders are now targeting western states such as Maharashtra, Gujarat and Madhya Pradesh, which together hold nearly 10% of the market and are seeing faster adoption driven by urbanisation and rising incomes.

Penetration in eastern, central and northern states remains moderate, while the northeast accounts for less than 1%.

Shift in perception

Gold loans, once associated with distress borrowing, are increasingly seen as a short-term liquidity tool. Faster processing, transparent pricing, regulated lending practices and cross-selling opportunities have strengthened consumer acceptance.

NBFCs say the product also helps bring first-time borrowers into the formal financial system, particularly micro and small enterprises.

ICRA expects the organised gold loan market to hit ₹15 lakh crore by FY26, a year earlier than previously projected.