Kerala’s Golden Noose: RBI Shrugs as Interest Vampires Turn Lifelines into Death Sentences
By Our Economic Beauro
Kerala—India’s beacon of literacy and fiscal savvy—stands plundered in broad daylight. Its people, armed with education and remittances, are bled dry by moneylenders, both suited and shadowy. Banks lend gold at 8–10%, a civilized toll. But NBFCs? They feast at up to 29%, with the Reserve Bank of India’s regal nod of approval. The RBI, guardian of the nation’s purse, has decreed: “Charge what thou wilt.” No cap. No mercy. Even 100% interest is fair game under its benevolent gaze. In God’s Own Country, gold—once a shield of prosperity—has become a noose, tightened by regulatory indifference.
In the emerald heart of Kerala, where gold gleams in every household like a promise of resilience, a silent heist unfolds. Gold loans—meant as emergency lifelines for farmers, traders, and the working poor—have mutated into predatory traps. Non-Banking Financial Companies (NBFCs), from local outfits to national behemoths slap on rates as high as 27–29%—and that’s before the hidden knives of processing fees, valuation cuts, and penalty traps. The RBI? It watches, hands off, as if usury were a virtue. As of now, Kerala’s NBFCs clutch 381 tonnes of pledged gold—more than the Bank of England’s official reserves—securing loans worth over Rs 4.6 lakh crore. This isn’t lending. This is extraction, sanctioned by silence from Mint Street. The RBI must impose a hard cap on rates and enforce real oversight—before Kerala’s gold, and its people, are pawned for good.
The Scale of the Crisis: Evaluating Kerala’s Gold Loan Market
Kerala’s gold loan ecosystem is a powerhouse, fuelled by the state’s unparalleled affinity for gold, with households holding some of the highest per capita quantities in India. Contributing roughly 20% to the nation’s gold consumption, Kerala mirrors this in lending; capturing about 25% of India’s organized gold loan market. Nationally, the organized sector hit Rs 11.8 lakh crore in outstanding loans by March 2025, ballooning to an estimated Rs 12-13 lakh crore by mid-year amid a 122% surge in disbursements. In Kerala, this translates to official organized disbursements exceeding Rs 4 lakh crore annually, with NBFC assets under management (AUM) reflecting the value of pledged gold at over Rs 4.6 lakh crore as of November 2025, up significantly year-on-year. Driven by record gold prices—hovering at Rs 12,202 per gram for 22-karat jewellery in November 2025—these loans fund essentials from agricultural inputs to medical emergencies, yet the growth masks deepening distress.
Unofficial lending through private moneylenders amplifies the peril, estimated at nearly double the official figure in Kerala—potentially Rs 7-8 lakh crore—pushing the total market toward Rs 11-12 lakh crore or trillions in effective terms when accounting for high-interest rollovers and hidden charges. This shadow economy thrives on informality, charging rates up to 50-100%, ensnaring borrowers who shun regulated channels due to speed or stigma. Drawing from national trends where unorganized lending accounts for 63% of the market (almost 1.7 times the organized 37%), Kerala’s rural and semi-urban pockets see even heavier reliance on these usurious sources, exacerbated by RBI’s regulatory squeezes on formal players. Together, official and unofficial streams form a trillion-rupee vortex, where Kerala’s 381 tonnes of pledged gold—valued at over Rs 4.6 trillion—secures loans that extract wealth from the bottom rung, fueling inequality in a remittance-dependent state grappling with inflation and climate shocks.
Predatory Rates: The Core of Exploitation
While banks offer gold loans at 8-10% annually, NBFCs dominate Kerala’s market with averages of 15-22%, often eclipsing the RBI’s repo rate of 6.5%. Leading players advertise “starting from 1% per month” (about 12% yearly), but add-ons like processing fees (1-2%) and valuation haircuts inflate effective rates to 20-27% for short-term or high-risk loans. Local entities exemplify this, where base rates of 21-22% can swell further for rural borrowers, far outstripping bank alternatives. The RBI’s deregulated stance—leaving rates to internal policies under a loose Fair Practices Code—amounts to tacit consent for this blatant looting of borrowers, as no upper ceiling exists to prevent lenders from imposing usurious charges that turn modest needs into crippling burdens. This hands-off policy enables a system where NBFCs and their unorganized counterparts extract disproportionate profits, with the RBI’s inaction directly facilitating the exploitation.
This usury perpetuates rollovers, where interest payments fund new loans, compounding debt amid stagnant incomes. In Kerala, where gold loans spiked 122% by June 2025, repayment is prompt for many due to cultural pressures, but defaults trigger aggressive recoveries: intimidation, shaming, and undervalued auctions of heirlooms. Tragedies like borrower suicides highlight the toll, as families lose generational assets to fees that erode 75-85% loan-to-value (LTV) ratios, even after RBI hikes to 85% for loans under Rs 2.5 lakh.
Why Kerala Bears the Brunt: A Perfect Storm
Kerala’s uniqueness—high gold ownership, rural reliance on quick credit, and NBFC proliferation—makes it ground zero for abuse. Organized loans here grew at a 26% CAGR through FY2025, outpacing national trends, yet convenience masks costs: NBFCs process billions swiftly, but at premiums that dwarf bank rates. Recent RBI easing on LTV and silver collateral (from April 2026) will swell volumes to Rs 15 lakh crore nationally by March 2026, but without rate controls, it risks channelling more into exploitation. Adjacent states warn of spillovers to informal lenders at 50%+ rates, a reality already rife in Kerala’s villages, where unofficial lending’s near-doubling of the official market intensifies the RBI-enabled plunder.
The Path Forward: Caps and Controls for Equity
The RBI’s inclusion mandate demands balance, not bondage. A cap at 18-20%—aligned with banks—would transform gold loans from traps to tools, yielding:
Borrower Safeguards: Halting spirals, preserving assets for true needs, as seen in calls for small-loan exemptions.
Market Fairness: Bridging bank-NBFC gaps, curbing opaque marketing.
Systemic Resilience: Mitigating default risks from over-leveraged portfolios amid volatile gold (up 66% in 2025).
Complement with mandatory transparency on effective rates, bans on coercive tactics, and education drives. Echoing past panels like the 2013 Rao Committee, these fixes are overdue, especially to rein in the unorganized sector’s excesses that RBI’s deregulation has indirectly fueled.
Kerala’s gold loan saga- Rs 4+ lakh crore official, nearly double in unofficial impact—exposes India’s lending fissures: a rush enriching lenders while impoverishing pledgers, all with the RBI’s implicit approval through its refusal to cap rates. RBI’s auction guidelines help, but rate caps are essential to cure the malaise. The RBI Governor must respond to borrowers’ pleas, ensuring 2026 ushers equitable reform. Envision Kerala where a farmer’s pledge empowers, not enslaves—gold as ally, not adversary.
