Kamal Ghorui
While gold carries immense emotional and cultural significance, in its idle form it contributes little to economic activity. (AI image)
By Shaji VargheseIndia stands at a pivotal juncture where inclusive growth must extend beyond metros to Tier-2, Tier-3, and rural economies. One powerful yet underutilised lever in this journey is household gold. In recent years, the value of household gold has more than doubled, significantly increasing family wealth across India. According to a 2025 Morgan Stanley estimate, Indian households hold nearly 34,600 tonnes of gold jewellery, valued at around $3.8 trillion—almost 89 percent of the country’s GDP. Much of this gold has been accumulated over generations or acquired to mark important life milestones.While gold carries immense emotional and cultural significance, in its idle form it contributes little to economic activity. It is therefore imperative that India deploys effective policies to enable household gold to be used productively—without forcing families to relinquish ownership.Gold loans offer precisely this solution. They allow households to unlock the economic value of gold while retaining emotional ownership, making gold a working asset that supports livelihoods, enterprise, and growth.Over the past few years, regulators have taken meaningful steps to introduce balanced regulations that protect customers while supporting sectoral development. These measures, coming into effect from April 1, 2026, create a stronger foundation. However, to unlock the full potential of gold loans for inclusive growth, further reforms are needed.Boosting Rural Credit Access Through Gold LoansCredit penetration in rural India remains low, particularly among shopkeepers and MSMEs—estimated at nearly six million nationwide. Many continue to lack access to formal finance, even as they need working capital to upgrade infrastructure, manage inventory, and expand offerings.Gold loans are ideally suited to meet these short-term needs. Interest is charged only for the period the loan is utilised, allowing borrowers to repay when cash flows improve and re-borrow as required. This flexible credit cycle supports business growth, encourages financial discipline, and mobilises household savings in a way that benefits both borrowers and the broader economy.Strengthening Last-Mile Credit Through NBFC Branch ExpansionA key reason for low credit penetration in Tier-2, Tier-3, and rural areas is limited physical branch presence. Over time, NBFCs have demonstrated a superior ability to reach underserved regions, tailor products to local needs, and operate efficiently through well-established models.For gold loans in particular, physical branches are essential and cannot be fully replaced by digital channels, unlike unsecured personal loans. Encouraging NBFCs to expand branch networks would significantly improve access and deepen market penetration.Currently, regulatory restrictions and prescriptive guidelines on branch expansion can slow network growth. Liberalising these norms—especially for collateral-backed products like gold loans—would accelerate outreach while maintaining prudential safeguards.Rationalising Risk Weights to Expand Gold Loan SupplyNBFCs play a critical role in last-mile credit delivery, particularly for small-ticket and entry-level loans in rural areas. However, all NBFC loans currently carry a uniform 100 percent risk weight, which raises the cost of lending and limits credit supply.Gold loans are regulated by loan-to-value (LTV) norms, similar to home loans, where risk weights vary based on LTV. Extending a similar risk-based framework to gold loans could unlock significant capital, enabling NBFCs to expand credit availability to deserving borrowers.A coordinated approach between the Government and regulators can help create a supportive policy framework that recognises the broader economic and nation-building potential of expanding gold loan credit.Reintegrating Temporarily Distressed BorrowersRecent stress in unsecured lending segments, including microfinance, has adversely affected credit scores for millions of households. Many of these borrowers experienced temporary or one-time defaults and are now excluded from formal credit.Targeted schemes are needed to help such borrowers re-enter the formal financial system. Ensuring that temporary distress does not lead to permanent exclusion will allow households to regain access to credit and participate productively in the economy.Reforming SARFAESI Norms to Expand Rural Housing CreditHousing is a powerful economic driver in rural India, with strong linkages to nearly 50 sectors. While banks offer rural housing loans, their reach in smaller ticket sizes—below ₹10–15 lakh—is limited. NBFCs, with their extensive branch networks, are better positioned to serve this segment.However, SARFAESI Act provisions restrict NBFCs’ ability to recover smaller-ticket secured loans, as enforcement is allowed only for outstanding amounts of ₹20 lakh and above. Harmonising SARFAESI applicability for NBFCs in line with banks and housing finance companies would significantly improve credit flow and accelerate rural housing growth.Bringing Gold Lending Into the Formal EconomyAn estimated 60 percent of gold lending remains unregulated. Formal gold loans, by contrast, operate under clear regulatory guidelines and supervision. Allowing greater flexibility in NBFC branch expansion would accelerate formalisation and extend regulated credit to underserved markets.With a strong regulatory framework already in place, wider branch access can help bring millions of borrowers into the formal financial system.The upcoming Budget presents a timely opportunity to build on existing reforms. With continued policy support and regulatory alignment, gold loans can unlock household wealth, deepen rural credit access, and drive inclusive growth across Tier-2, Tier-3, and rural India.(Shaji Varghese is CEO of Muthoot FinCorp)
