Gold loan outstanding of banks rises 43.4% in 1st half of FY25

Banks have reported a steep 43.4 per cent rise in gold loan disbursements in the first six months (April-September) of the current financial year (2024-2025 or FY25) amid the sustained rally in gold prices and certain deficiencies in a loan segment flagged by the Reserve Bank of India (RBI) recently.

With customers queuing up to pledge gold to take advantage of high prices, gold loan outstandings of banks jumped to Rs 147,081 crore as of September 2024 as against Rs 102,562 crore in March 2024, according to the latest RBI data. If the gold loan assets of non-banking financial companies (NBFCs) are also taken into account, gold loan book of banks and NBFCs would have crossed the Rs 3 lakh crore mark. Gold loan assets under management of Muthoot Finance was at Rs 75,827 crore, and it holds 188 tonnes of gold pledged by customers as of March 2024.

Gold loan growth in 2022-23 was just 14.6 per cent, according to the RBI.

The sudden jump in gold loans forced the central bank to ask gold loan financiers to review policies, processes and practices while offering such loans. The RBI’s direction came after it found deficiencies in loans offered by supervised entities (SEs) against pledge of gold ornaments and jewellery.

Some irregularities included shortcomings in the use of third parties for sourcing and appraisal of loans, valuation of gold without the presence of the customer, inadequate due diligence, and lack of end use monitoring of gold loans and lack of transparency during auction of gold ornaments and jewellery on default by the customer.