Credit Shift: Personal Loans Set to Overtake Gold Loans as India’s Fastest-Growing Segment

India’s retail lending market is preparing for a significant transition as unsecured personal loans regain sharp momentum and position themselves to overtake gold loans as the fastest-growing credit category. Following a prolonged two-year consolidation driven by regulatory tightening and borrower leverage scrutiny, personal lending is staging an aggressive comeback. A comprehensive report by global brokerage UBS Global Research characterizes this reversal as the “beginning of an unsecured upcycle,” signaling that the gold loan boom that dominated household borrowing over the past few years is beginning to stabilize.

Gold Loan Boom Cools as Bullion Rally Stabilizes

Over the last few years, gold-backed credit expanded at a blistering pace, growing nearly 50 percent year-on-year in FY26 to reach approximately ₹18.6 lakh crore. This unprecedented surge pushed gold lending’s share of India’s gross domestic product up five-fold, expanding from just 1 percent in FY19 to nearly 5 percent. The sharp rally was largely catalyzed by historic highs in gold prices, which encouraged households to pledge ornaments rather than opting for traditional unsecured personal debt. Non-banking financial companies (NBFCs) capitalized heavily on this trend, expanding their market share in the gold lending segment from 3 percent in FY18 to nearly 20 percent by August. However, with bullion prices plateauing, the structural incentive to substitute unsecured borrowing with gold loans is fading, leveling the playing field for unsecured products.

Personal Loan Disbursement Hits Two-Year High

As gold borrowing moderates, personal loans are filling the credit demand across both banking and non-banking institutions. Industry data indicates that personal loan growth accelerated to roughly 30 percent year-on-year for NBFCs and 9 percent for scheduled commercial banks by August, marking the strongest expansion rate registered by both categories in two years. In the NBFC space, this recovery is being steered primarily by mid-sized and large-ticket segments, which account for around 75 percent of the total personal loan portfolio. The resurgence reflects renewed lender appetite after institutional balance sheets digested earlier Reserve Bank of India risk-weight revisions.

Diverging Asset Quality: Personal Delinquencies Drop as Gold NPAs Rise

A noteworthy development accompanying this shift is the contrasting trend in asset quality across both retail loan baskets. Early-stage delinquencies in personal loans have recorded consistent improvement; 30-day personal loan defaults declined from 3.5 percent in June 2024 to 1.8 percent by August. Conversely, gold loan delinquencies have started ticking upward, rising from 0.7 percent in March to 2.6 percent by August. This shift in stress metrics highlights that gold loan portfolios are experiencing normalization after an extended run of hyper-growth, while personal loan risk metrics are benefiting from tightened underwriting screens.

Broader Economic Implications for Indian Borrowers

The rotation back into personal loans indicates resilient consumer sentiment and healthy urban consumption appetite despite interest rate cycles. Financial analysts project that potential macroeconomic tightening will unlikely stall this momentum, predicting an orderly interest rate cycle that won’t disrupt retail demand. With digital verification channels speeding up underwriting and lenders targeting prime, salaried demographics, personal credit is regaining its traditional stature as the primary liquidity engine for Indian households.