Hi everyone,  

Welcome to the 142nd edition of The Pattern, a weekly where we dive into the latest from the world of economy, technology and finance. Let’s get started. 

The failing Indian economy needs the Midas touch.  

As India grapples with a slowing GDP, reduced credit growth, and cautious lending practices, one segment shines as a beacon of growth: gold loans.  

How did we get here?  

The momentum of India's economy has hit a setback. After a strong run in recent years, the GDP growth rate is expected to slow down in 2025. In the second quarter of FY25, we observed that growth slowed to 5.4% . As a result, the RBI reduced its yearly projection to 6.7% for FY26 . This slowdown has been caused by a number of factors, including rising production costs, declining consumer demand, and unclear policies. 

This slowdown has directly affected credit growth across sectors: 

• Non-food bank credit grew 12.4% y-o-y as of December 27, 2024, down from 15.8% the previous year. 

• Lending to industry rose modestly by 7.4% y-o-y, with the infrastructure segment witnessing a clear deceleration. 

• Credit to the services sector also cooled to 13.0% y-o-y, down from 20.0%, reflecting reduced lending to NBFCs and trade sectors. 

Despite this slowdown, one category has bucked the trend—gold loans. While other forms of credit face headwinds, loans extended against gold jewellery by commercial banks have surged. Gold is now bridging the gap left by slow growth in other lending segments, and the numbers are striking: 

• Gold loans grew by 68%  in the first nine months of FY25, reaching Rs 1.72 lakh crore, compared to a modest 12.7% growth in the same period a year ago. 

• Non-bank lenders witnessed a surge in gold loan disbursements, rising to Rs 1.55 lakh crore between April and September 2024, compared to Rs 1.32 lakh crore during the same period the previous year. 

What explains this dramatic rise?   

Gold prices have climbed approximately 12% during April-December FY25. For lenders, this surge in value means greater collateral security. Also, the RBI mandates a loan-to-value (LTV) ratio cap of 75% for gold loans. This means borrowers can access up to 75% of their gold's market value. This means if the gold is worth Rs 1000, the borrower will get Rs 750. As prices rise, both banks and borrowers find themselves in a favourable position—lenders enjoy safer lending backed by appreciating assets, while borrowers gain access to increased liquidity. 

Adding to this momentum are regulatory pressures on unsecured lending. That's why gold loans have become a safer bet. Since gold is a tangible asset, lenders feel more secure knowing it can be easily sold if borrowers default—often even at a profit when prices are high. This makes gold loans quicker and more reliable than unsecured credit, which can be harder to recover. 

Gold has cracks too.   

The RBI has flagged several irregularities in gold loan practices. One of the key issues is the lack of LTV monitoring by the lenders. LTV monitoring ensures that the loan amount stays within the regulatory cap. Without regular checks, a decline in gold prices can leave lenders exposed. In such cases, the collateral might not be enough to cover the loan anymore, increasing the risk of financial losses. Not just that, gold loan default jumps to 30%, reaching Rs 6,696 crore as of June 2024.  

Gold is a secure yet volatile asset. Gold prices are influenced by global economic shifts and geopolitical tensions. This volatility makes it critical for lenders to actively manage LTV ratios. Lenders’ complacency has already caused problems. Moreover, RBI has raised concerns about non-compliance with several gold loan lenders. Along with these issues, the involvement of tech was limited. Lenders need to invest in robust technology infrastructure. Real-time valuation tools, automated compliance systems, and advanced risk analytics can help lenders monitor LTV ratios more effectively and detect potential fraud. 

As the economy works to recover, gold loans provide important lessons and warnings. They show how traditional assets can remain strong in today's finance and remind us to stay alert to potential risks in the system. After all, while all that glitters may be gold, it's crucial to ensure that the shine isn't masking deeper cracks beneath the surface.  

Reading List:  

1. Union Budget 2025: Grameen Credit Score to serve credit needs of self help groups  

2. No tax on income up to Rs 12 lakh, but it's a rebate, not an exemption  

3. Lending rates ease, deposit rate firm up in December     

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter here and follow FinBox on LinkedIn to always get all updates. 

Cheers, 

Mayank  

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.