Gold has fallen about 23% from its early-2026 peak. Lenders that grew rapidly as prices soared now hold loans backed by jewellery worth much less, and the loans made at the top are the most exposed.
India’s gold-loan companies spent two years riding a rising market. As gold prices climbed, borrowers could pledge the same jewellery for larger loans, and lenders’ books grew without much effort. Now the market has turned.
Gold prices have fallen about 23% from their January-to-March peak, according to a CreditSights report published on 12 October. On the Multi Commodity Exchange, gold futures traded around ₹1.48 lakh per 10 grams on Wednesday. For lenders whose only security is the gold in their vaults, that decline directly reduces the value of their collateral.
How the risk works
The key measure is the loan-to-value ratio, or LTV: the size of a loan compared with the value of the pledged gold. A loan of ₹70,000 against jewellery worth ₹1 lakh has an LTV of 70%.
If gold falls 20%, the same jewellery is worth ₹80,000, and the LTV jumps to about 87%. At that point the lender’s cushion has nearly disappeared.
CreditSights estimates that average portfolio LTVs at Muthoot Finance, Manappuram Finance and IIFL Finance were about 66% to 70% at the end of June. That leaves a reasonable buffer on average.
The danger lies in the loans made when gold was at its highest. Those were valued against peak prices, so they have lost the most cushion as prices fell. Even if a borrower takes no new money, the loan can become under-secured simply because gold is cheaper.
What lenders can do
Gold lenders have tools to manage this. They can ask borrowers to repay part of the loan or pledge more gold. If borrowers do not respond, lenders can auction the jewellery. Most gold loans are also short-term, often under a year, which lets lenders reset terms quickly as prices change.
But each response has a cost. Margin calls frustrate customers and can push them to rivals. Auctions are slow, expensive and damaging to a lender’s reputation, especially when the pledged items are family jewellery.
And falling prices reduce the amount new borrowers can take, slowing loan growth just as competition intensifies. Banks have been entering the gold-loan market more aggressively, offering lower rates to the same customers.
The market’s verdict
Investors have already marked down the sector. Muthoot Finance’s shares are well below their record of ₹4,149 reached in January, and Manappuram has also fallen sharply from its highs, after both stocks rallied strongly in 2025 as gold soared.
The sector is not facing a crisis. Average buffers remain adequate, and gold lenders have weathered price drops before. Their business model is simpler than most: the collateral is liquid, easy to value and sits in their own vaults.
But the boom years made growth look effortless, and that has ended. The next few quarters will show which lenders were careful about how much they lent when gold was expensive, and which were not.
For borrowers, the message is practical. Anyone who took a large gold loan near the peak should expect a call from their lender if prices keep falling.
About The Author
