Gold loans have emerged as the fastest-growing retail credit product in India, according to Bhavesh Jain, MD & CEO of TransUnion CIBIL. Gold loans now hold the second-highest position in terms of outstanding debt, following only home loans. The total Assets Under Management (AUM) for gold loans has climbed to nearly Rs 20 lakh crore. Even more impressive is the asset quality, with credit losses sitting at a very low 0.3%.

One of the most striking findings is that 20% of gold loan borrowers—or one in five—already have a Non-Performing Asset (NPA) on other types of loans. An NPA (a loan where payments are over 90 days late) usually stops a person from getting more credit. However, because gold loans are secured (backed by physical gold), lenders are more willing to lend to people with poor credit histories. The gold remains at the bank premises, providing a safety net if the borrower fails to pay.

There is also a major shift in who is taking these loans. While gold loans were traditionally popular in Southern India or among older generations, they are now growing fast in Western and Northern India. Young 'Gen Z' borrowers and millennials now make up a large portion of the market, with one in five gold loans taken by younger individuals. Geography is also changing, as these loans are no longer just for rural or semi-urban areas; urban customers are now active participants.

Women are becoming a powerful force in this segment. More than one-third of all gold loans in India are taken by women. This is largely because women often own the family gold and find these loans easy to get for starting small businesses or handling personal needs. Research shows that when women are taught to monitor their credit scores, the quality of the loan portfolio improves even further.

The profile of New-to-Credit (NTC) borrowers—people taking their first-ever loan—is also shifting. Before COVID-19, NTC borrowers usually started with agriculture or two-wheeler loans. Today, many are entering the credit market through consumer durable loans, specifically phone financing. As smartphones become essential for work and content creation, Gen Z is using mobile finance as their gateway into the formal banking system.

In contrast, the credit card market is seeing some stagnation. While the number of cards has reached 10.7 crore, the total number of unique cardholders has stayed stuck at 5.2 crore. This means banks are mostly giving more cards to existing users rather than finding new ones. Credit cards are facing tough competition from UPI for payments and personal or gold loans for credit. NTC borrowers who used to start with credit cards have dropped from 26% to just 7-8%.

For Indian bank officers, these trends highlight two things. First, gold loans are a safe way to grow the book even with customers who have struggled with other debts. Second, the 'New-to-Credit' strategy must focus on mobile and electronic financing to capture the younger generation. Monitoring the credit history of these young borrowers will be key as they progress from phone loans to larger credit products like personal loans and credit cards.