Banks with sizeable gold loan portfolios are benefiting from strong growth driven by a sharp jump in the price of gold, with select lenders seeing their gold loan portfolios rise even as underlying volume fell year on year, evidence of how dramatically the price of the yellow metal has inflated the value of the collateral. On the plus side, the loan-to-value ratio has improved quarter-on-quarter, suggesting that banks have remained fairly conservative in their underwriting policies, even as rising prices did much of the heavy lifting.“The rise in gold prices has been phenomenal over the past decade,” Hemant Sagare, Director, Ratings, Brickwork Ratings, told ET Markets. Gold was around $1,236 per ounce in February 2016. By February 16, 2026, it had reached $4,931.8 per ounce – almost a fourfold increase in the past decade. Even more striking, the steepest part of the rally has only occurred in the past two years: from $2,034 per ounce in February 2024, prices have more than doubled in 24 months.
This wave transformed gold loans from a niche product, regionally concentrated, to one of the fastest growing segments in the Indian retail credit sector. RBI data shows that gold loans are growing at around 128% year-on-year, easily exceeding overall credit growth, said Gaurav Bhandari, CEO of Monarch Networth Capital.
The appeal to lenders was simple. Gold loans are backed by jewelry collateral, carry lower credit risk and come with strong repayment discipline compared to unsecured personal loans. For banks navigating a changing regulatory environment, the asset class offered a faster recovery mechanism in the event of delinquencies, and with the regulator capping loan-to-value at 75%, there was a built-in cushion against price volatility.
“The majority of lenders resorted to increasing exposure to gold loan financing, which was a safer form of lending that supported lower pressure on capital adequacy,” Sagare said. Certain banks have gone even further and converted their gold loan portfolios from variable to fixed interest rates, in a move that has helped protect net interest margins in the current bearish interest rate cycle. Gold loan yields for some banks have even risen year-on-year, ICICI Securities noted, adding gains on top of volume growth.
“This has boosted asset quality and supported balanced portfolio growth for banks with disciplined underwriting frameworks,” Bhandari said.
Not all gold loan exposure is equal. Bhandari identified a handful of lenders as particularly well positioned to benefit from the precious metals-led cycle. CSB Bank and City Union Bank have strategically expanded their gold loan portfolios and leveraged branch networks for deeper retail penetration. Canara Bank, as a major PSU lender, can meet broad demand while managing risks through a diversified balance sheet. Karur Vysya Bank, a niche private bank with a strong regional retail franchise, benefits from guaranteed credit growth in its home market.
Sagare added that the smaller southern private and PSU banks, which dominate the gold loan rankings, are not newbies in this space. “These banks, mostly located in the southern part of the country, have traditionally been in the gold loan segment and are well versed in dealing with the nuances of such loan segments in case of emergency,” he said.
Among non-bank lenders, gold loan specialists Muthoot Finance and Manappuram have historically outperformed due to their focused models and strong collateral quality, despite operating outside the traditional banking framework.
The gold boom has also introduced a concentration risk that analysts are watching closely as gold prices soften in the near term.
“The mix of high gold loans is not uniform or unconditionally healthy,” Bhandari warned. “It could increase concentration risk if bullion prices reverse sharply or if underwriting standards deteriorate.” He emphasized the need for prudent LTV caps, diversification across segments and robust risk management to avoid systemic stress due to over-reliance on a single retail industry.
Sagare echoed this view, noting that a sharp decline in gold prices typically raises concerns around smaller banks with heavy exposure to gold loans, raising the specter of LTV breaches, faster provisioning and pressure on capital adequacy ratios.
For now, the boom is intact, balance sheets are swelling and the southern banks that built their franchises on gold are enjoying their moment. The question is how long the metal will continue to cooperate.
#Gold #rush #windfall #smaller #private #PSU #banks #riding #gold #boom