In the December quarter, CSB Bank led the pack with gold loans comprising a striking 51% of its total loan mix, followed by Karur Vysya Bank at nearly 29%, City Union Bank at 28%, South Indian Bank at 22.5%. PSUs like Indian Bank and Canara Bank were also in double-digits.
Banks with sizeable gold loan portfolios are benefitting from strong growth on the back of a sharp jump in gold prices, with select lenders seeing their gold loan books surge even as the underlying tonnage declined year-on-year in a testament to how dramatically the price of the yellow metal has inflated collateral values. Positively, loan-to-value ratios have improved quarter-on-quarter, suggesting banks have remained reasonably conservative in their underwriting, even as rising prices did much of the heavy lifting.
“The rise in gold prices has been phenomenal over the past 10 years,” Hemant Sagare, Director of Ratings at Brickwork Ratings, told ET Markets. Gold stood at roughly $1,236 per ounce in February 2016. By February 16, 2026, it had reached $4,931.8 per ounce — nearly a fourfold increase over the decade. More striking still, the steepest leg of the rally came in just the last two years: from $2,034 per ounce in February 2024, prices more than doubled in 24 months.
That surge transformed gold loans from a niche, regionally concentrated product into one of the fastest-growing segments in Indian retail credit. RBI data shows gold loans growing approximately 128% year-on-year, outpacing overall credit growth by a wide margin, according to Gaurav Bhandari, CEO of Monarch Networth Capital.
The appeal for lenders was straightforward. Gold loans are secured against jewellery collateral, carry lower credit risk, and come with strong repayment discipline compared to unsecured personal loans. For banks navigating a changing regulatory framework, the asset class offered a faster recovery mechanism in case of delinquencies and with the regulator capping loan-to-value at 75%, there was a built-in buffer against price volatility.
“Majority of lenders resorted to increased exposure in gold loan financing, which was a more secured form of lending alternative supporting lower pressure on capital adequacy,” Sagare said.Select banks have gone further, converting their gold loan portfolios from floating to fixed rates in a move that has aided net interest margin protection in the current falling rate cycle. Yields on gold loans for some banks have actually risen year-on-year, ICICI Securities noted, adding an earnings tailwind on top of the volume growth.
“This has helped asset quality and supported balanced portfolio growth for banks with disciplined underwriting frameworks,” said Bhandari.
Not all gold loan exposure is created equal. Bhandari identified a handful of lenders as particularly well positioned to capitalise on the bullion-led cycle. CSB Bank and City Union Bank have been strategically expanding their gold loan portfolios and leveraging branch networks for deeper retail penetration. Canara Bank, as a large PSU lender, can capture broad demand while managing risk through a diversified balance sheet. Karur Vysya Bank, a niche private bank with a strong regional retail franchise, benefits from secured loan growth in its home market.
Sagare added that the smaller southern private and PSU banks, which dominate the gold loan league table, are not novices in this space. “These banks, mostly based in the southern part of the country, have traditionally been active in the gold loan segment and are well acquainted in dealing with the nuances of such loan segments in case of any exigencies,” 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, though they operate outside the traditional banking framework.
The bullion boom has also stored up a concentration risk that analysts are watching carefully as gold prices soften in the near term.
“High gold loan mix isn’t uniformly or unconditionally healthy,” Bhandari cautioned. “It can heighten concentration risk if bullion prices reverse sharply or underwriting standards slip.” He stressed the need for prudent LTV caps, diversification across segments, and robust risk controls to avoid systemic stress from overdependence on a single retail vertical.
Sagare echoed the view, noting that a sharp decline in gold prices typically triggers concern around smaller banks with heavy gold loan exposure, raising the spectre of LTV breaches, faster provisioning, and pressure on capital adequacy ratios.
For now, the boom is intact, the 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 keeps cooperating.