India’s gold loan boom has a hidden risk. Can tokenisation help lenders tackle it?

India's gold loan market has witnessed significant expansion over the past year, with banks and non-banking financial companies (NBFCs) increasingly relying on gold-backed lending to meet consumer credit demand. However, recent signals of repayment stress among leading lenders suggest that the sector may need to look beyond the traditional security offered by physical gold.

In October 2026, Bajaj Finance and Piramal Finance flagged early signs of stress in their gold loan portfolios. According to a Reuters report dated October 21, bank loans against gold increased 83% year-on-year to ₹5.6 lakh crore in August 2026, while NBFC gold loans grew 69% to ₹3.6 lakh crore.

Piramal Finance also highlighted concerns around multiple borrowing, noting that nearly 35% of its customers had gold loans from another institution. Its management further indicated that approximately ₹4.7 lakh crore in industry-wide gold loan disbursements during FY26 went to customers who had other loans overdue by more than 90 days.

These developments underline an important distinction in secured lending: the value of collateral does not necessarily reflect a borrower's ability to repay. While physical gold provides lenders with a tangible asset against which credit can be extended, it does not eliminate risks arising from over-leverage, multiple borrowing or weak repayment capacity.

This is where gold tokenisation could become relevant to the future of India's lending ecosystem.

Can tokenisation improve collateral transparency?

Gold tokenisation involves representing ownership or an enforceable claim over physical gold through digital tokens. The underlying gold is generally held in secure custody, while the digital representation records the corresponding ownership or entitlement.

For financial institutions, the potential extends beyond digitising gold ownership. A well-designed tokenisation framework could improve how lenders verify, track and manage collateral.

For instance, digital records linked to independently verified gold holdings could make ownership, quantity and purity easier to establish. If integrated with an interoperable collateral registry, such infrastructure could also help lenders identify whether an asset has already been pledged elsewhere.

This is particularly relevant in a market where borrowers may access gold-backed credit from multiple institutions. A common verification mechanism could potentially reduce duplicate pledging and improve transparency across participating lenders.

Tokenisation could also simplify collateral administration. Where gold is held in regulated vaults, digital ownership and security-interest records could potentially be updated without repeatedly moving the underlying physical asset. Reliable valuation mechanisms could further support lenders in monitoring collateral coverage and loan-to-value ratios.

However, these benefits would depend on secure custody, independent verification, legal recognition and participation across lending institutions. Blockchain-based records alone cannot guarantee that physical gold exists or prevent pledging outside the participating network.

India's EGR framework offers a starting point

India already has a regulatory framework for digitally representing physical gold through Electronic Gold Receipts (EGRs).

Under the Securities and Exchange Board of India's (SEBI) framework, physical gold is deposited with a regulated vault manager, against which Electronic Gold Receipts are created through the depository system. These receipts are held in demat accounts and can be traded on recognised stock exchanges. Investors can also convert them into physical gold through the prescribed process.

EGRs demonstrate how physical gold can be integrated into a regulated digital market structure, bringing together secure custody, standardised asset verification and electronic ownership records.

However, EGRs and privately issued blockchain-based gold tokens are not interchangeable. EGRs operate within an established securities market framework, while other tokenisation models may involve different ownership structures, custody arrangements and regulatory considerations.

There is also an important lending-related limitation. The RBI's Lending Against Gold and Silver Collateral Directions, 2025, permit lending against eligible gold jewellery, ornaments and coins while restricting lending against primary gold, including bullion, and financial assets backed by primary gold.

Consequently, an EGR representing vaulted bullion cannot automatically be treated as eligible collateral for a conventional gold loan. Any such lending model would require regulatory clarity and appropriate legal recognition.

Technology cannot replace responsible lending

While tokenisation could strengthen collateral verification and management, it cannot address the underlying problem of borrower indebtedness.

A lender may have complete visibility into the ownership, purity and valuation of pledged gold and still face repayment difficulties if the borrower lacks sufficient income or has accumulated excessive debt.

The recent developments in the gold loan market reinforce the need for financial institutions to assess borrowers beyond the value of their collateral. Credit bureau checks, income assessment, borrower-level exposure monitoring and disciplined underwriting remain essential to responsible lending.

Tokenisation should therefore complement existing risk management practices rather than replace them.

For the technology to deliver meaningful value, India would also need an interoperable framework connecting lenders, custodians, depositories and other relevant institutions. Clear rules around digital ownership, security interests, custody and default resolution would be equally important.

Building a more transparent gold-backed lending ecosystem

India's gold loan market continues to present significant opportunities for financial institutions, particularly as households seek accessible credit against existing assets. However, its rapid expansion also makes stronger collateral management and borrower-level risk assessment increasingly important.

Tokenisation could contribute to this evolution by improving asset traceability, enabling more efficient collateral administration and supporting transparent ownership records. Its immediate opportunity may not lie in replacing traditional gold loans but in strengthening the digital infrastructure surrounding them.

Ultimately, the resilience of India's gold-backed lending ecosystem will depend on more than the value of the gold held as collateral. It will require reliable asset verification, responsible credit assessment and regulatory frameworks that allow financial innovation to operate within clearly defined safeguards.

As the market evolves, the larger opportunity may be to move from simply lending against physical gold towards building a more transparent, verifiable and accountable gold-backed financial ecosystem.