Gold Loans Face New Rival as Personal Lending Accelerates

Personal loans are regaining momentum in India’s unsecured credit market and could overtake gold loans as the fastest-growing lending segment, according to a report by UBS Global Research.

The brokerage described the trend as the “beginning of an unsecured upcycle”, following a two-year slowdown in personal lending triggered by regulatory tightening and rising borrower leverage.

Gold loans expanded by around 50 per cent year-on-year in FY26 to approximately Rs 18.6 lakh crore, raising their share of GDP five-fold since FY19, from 1 per cent to 5 per cent.

However, the rapid growth in gold-backed lending was largely driven by elevated gold prices, and the momentum has started to moderate as gold prices stabilise, the report said. This is reducing an important alternative that had displaced personal lending in recent years.

NBFCs have also significantly expanded their presence in the gold-loan market. Their share has risen more than six-fold since FY18, from 3 per cent to 20 per cent of the segment as of August. UBS expects the pace of further market-share gains to moderate as the underlying growth driver weakens.

Meanwhile, personal loan growth has accelerated sharply. Growth among NBFCs reached around 30 per cent year-on-year through August, while banks recorded 9 per cent growth. According to the report, these were the fastest growth rates for both categories in two years.

Credit quality trends have also improved in personal lending. Thirty-day personal-loan delinquencies declined steadily from 3.5 per cent in June 2024 to 1.8 per cent in August 2026.

Gold-loan delinquencies, in contrast, increased from 0.7 per cent in March to 2.6 per cent in August.

UBS said the possibility of higher interest rates is unlikely to reverse the shift in credit-market momentum. The brokerage expects a more gradual 50-basis-point rate-hiking cycle by the end of calendar 2026, compared with the more aggressive 100-basis-point increase currently priced into the derivatives market.

The report indicates that improving personal-loan growth and credit-quality trends, alongside moderating gold-loan momentum, could mark a shift in the composition of India’s unsecured credit market.