The short-loan tenors involved in gold loans mitigate risk.
The longer the term, the lower the loan-to-value ratio, which is typically 75 percent for three months.
"You're just taking a call on three months. It's not like you're doing a home loan for 20 years and you've got to live with the property," said Amit Saxena, chief executive of Karvy Finance, a unit of one of India's biggest brokerages, which entered the gold loan business last year.
Gold loans are safe if branches are secure and the lender properly appraises the collateral, which can be liquidated in case of default.
Sentimental value means default rates are low.