All that glitters is not gold, but for Tamil Nadu’s borrowers, the yellow metal proved to be a valuable source of liquidity as gold prices surged over the past year. The state led the country in outstanding gold loans, with borrowers across agriculture, MSMEs and other segments increasingly leveraging their gold holdings. The trend continued into first quarter of the current fiscal. Data furnished in Lok Sabha recently shows TN topped the country in gold loans outstanding with public sector banks (PSBs), at `4,11,656 crore as of March 31, 2026. TN’s outstanding was about 85% higher than that of Andhra Pradesh, ranked second with `2,22,953 cr.The Union ministry of finance said loans against gold have been instrumental in promoting financial inclusion and providing access to credit, particularly to rural borrowers, micro, small and medium enterprises (MSMEs) and underserved segments of the population. They bring new-to-bank or new-to-credit customers into formal lending channels, including banks and NBFCs, and protect borrowers who could otherwise be pushed into unorganised channels and exposed to usurious interest rates and unfavourable loan covenants.State-owned Indian Bank’s gold loan portfolio in TN jumped 50.3% year-on-year (YoY) to `1,06,818 crore as of March 31, 2026, from `71,079 crore a year earlier. The agriculture segment was the primary driver of gold loan demand in the state, accounting for 85% of the portfolio, followed by retail and MSMEs at 11% and 4%, respectively.“Gold loans are actively availed for business growth by various manufacturing industries to upgrade machinery and technology, invest in new products and capacity expansion, execute bulk orders, expand businesses and establish new units. In TN, MSME segment accounted for `4,396 crore, representing 4% of the total gold loan portfolio. These loans were primarily availed by MSME enterprises to meet working capital requirements, support business operations and finance manufacturing activities,” a senior Indian Bank official said. As of June 30, 2026, Indian Bank’s gold loan portfolio in TN stood at `1,10,134 crore, against `77,212 crore in the year-ago quarter, reflecting a YoY growth of 42.6%.Another Chennai-headquartered PSB, Indian Overseas Bank (IOB), recorded 54% YoY increase in its gold loan portfolio between FY25 and FY26. Gold loans were availed for crop cultivation, purchase of agricultural inputs, dairy and allied activities, working capital requirements, education, medical expenses and other urgent household needs.IOB MD and CEO Ajay Kumar Srivastava said gold loans were also availed by small businesses, traders, manufacturers and service providers to meet immediate funding requirements. “The funds availed supported the purchase of raw materials, inventory build-up, machinery repairs, expanding business activities and bridging temporary cash-flow gaps, contributing to growth,” he added.Cholamandalam Investment and Finance Company (Chola), the financial services arm of the Murugappa Group, entered the gold loan segment last year and exceeded an assets under management (AUM) of `2,000 crore in the category during Q1 FY27. Gold prices rose sharply over the past year, from `8,510 per gram for 22-carat gold on April 1, 2025, to `11,460 per gram on March 31, 2026. On August 28, 2026, the price stood at `14,650 per gram.Jayantilal Challani, president of the Jewellers and Diamond Traders’ Association – Madras, said the rising price of gold had created interesting dynamics in the retail jewellery market. “Gold exchange for purchasing new jewellery used to be less than 25%. But it doubled to 50% in 2025-26 because customers got better value for their gold. Several individuals used this as an opportunity to build assets, such as buying housing plots or new vehicles. In the micro-enterprise segment, several grocery outlets modernised and expanded to cater to the preferences of new-generation customers, since gold pledged provided higher-value funding for investments,” he said.Gold loans came as a blessing in disguise for MSMEs struggling under the double whammy of reciprocal US tariffs and the US-Iran war. Coimbatore District Small Industries Association (CODISSIA) immediate past president M Karthikeyan said gold loans availed by MSMEs in Coimbatore increased by an additional 10% over the past year. “The ecosystem of Coimbatore is conservative. MSMEs prefer gold loans over term loans because the turnaround time for accessing a gold loan is quicker. On the one hand, raw material prices shot up due to geopolitical issues, while micro and small industries required immediate short-term working capital to buy raw materials and meet transportation costs. At this point, gold, whose price was on the rise, came as a saviour and protected several of them during the heightened crisis,” he said.Investment consultant and former president of the Hindustan Chamber of Commerce V Nagappan said electronic gold receipts (EGRs) should be popularised among MSMEs to make the process of pledging or selling gold easier and improve liquidity.M K Anand, founder of SEE CHANGE Consulting and strategic business advisor to MSMEs, observed that gold loans have become a financial shock absorber for TN’s micro and small businesses. “The deeper story is that gold is becoming a bridge between household wealth and entrepreneurial working capital.“For an MSME: use gold loans to bridge a temporary cash-flow gap — not to finance a permanent business problem. If the business has a healthy order book, predictable receivables and a clear repayment cycle, a gold loan can be a powerful short-term working-capital tool. But if the business is structurally loss-making, using family gold to keep it alive only postpones the problem. For long-term manufacturing expansion, machinery purchases and capacity creation, MSMEs should graduate to structured term loans, working-capital limits, credit-guarantee-backed finance and institutional funding mechanisms. Gold should unlock a business opportunity — not finance a business weakness,” he said.
