Bank gold loans to outpace overall credit growth in medium term: Ind-Ra

India Ratings and Research (Ind-Ra) expects banks’ gold loans to continue outpacing overall banking system credit growth in the medium term, supported by higher gold prices, rising household borrowing capacity, and lenders’ increasing focus on secured lending products.

Gold loans across banks grew nearly 45% year-on-year (YoY) in FY26, around 2.7 times the overall banking system’s credit growth of 16.7%. The segment now accounts for 6.9% of total banking credit, Ind-Ra said.

The agency noted that the sharp growth in gold loans has largely been value-led, reflecting a roughly 50% compound annual growth rate (CAGR) in gold prices over the past two years. While the pace of expansion warrants monitoring, Ind-Ra said the credit profile of bank-led gold loan portfolios remains strong, supported by conservative underwriting, prudent loan-to-value (LTV) practices and healthy asset-quality indicators.

As of March 2026, the gold loan market was valued at ₹18.6 lakh crore. Banks held a dominant market share of around 75%, significantly higher than the approximately 12% share of non-bank finance companies (NBFCs). However, NBFCs have gained around 210 basis points in market share in recent years, primarily at the expense of informal money lenders.

“Banks continue to expand their gold loan portfolios, albeit with conservative underwriting and a strong focus on containing LTVs. During FY26, gold loans across banks grew nearly 45% YoY, about 2.7x the overall FY26 banking system credit growth rate of 16.7%, now accounting for 6.9% of the total banking credit,” said Karan Gupta, Head–Financial Institutions, Ind-Ra. “However, one should be watchful of income-generating loans (IGLs), where LTVs could be treading in a cautionary zone,” he added.

Agricultural lending remains key

Ind-Ra expects agricultural lending to remain the cornerstone of banks’ gold loan portfolios, although retail gold financing is likely to account for a growing share of overall exposure.

Agriculture financing accounted for roughly two-thirds of banks’ gold loan portfolios in FY26, down from 85% in FY24. The segment largely comprises scale-based financing with a bullet repayment structure. Gold-backed agricultural loans enable farmers to access credit based on estimated cultivation costs rather than relying solely on land-backed collateral.

Retail gold loans accounted for roughly one-third of banks’ aggregate gold loan exposure in FY26, compared with around 15% in FY24. Ind-Ra attributed the increase largely to sustained gold price appreciation, which has materially increased borrowers’ ability to raise funds against the same quantity of pledged gold.

Conservative LTVs support risk management

Ind-Ra said conservative underwriting and prudent collateral management would continue to differentiate banks from NBFCs in the gold loan market. Consumption-oriented gold loans are subject to regulatory LTV caps ranging from 75% to 85%, depending on the loan amount. For agricultural loans and IGLs, LTVs are based on an assessment of the underlying economic activity rather than a fixed regulatory threshold.

Most large public sector banks, however, have internally capped LTVs at 80% even for these segments, reflecting a cautious approach to portfolio risk management. The agency said IGLs require stronger underwriting and more comprehensive risk assessment than traditional consumption lending. Banks typically verify land ownership, validate the borrower’s farmer status through declarations and monitor the end use of funds.

In contrast, several NBFCs have adopted more aggressive origination strategies in the IGL segment, including higher LTVs and weaker end-use monitoring and risk-mitigation frameworks. Consequently, NBFC-originated IGL portfolios could face higher collateral and credit risks, particularly during periods of heightened gold price volatility.

Co-lending opportunities to increase

Ind-Ra expects the recent harmonisation of gold loan regulations to create a stronger foundation for co-lending partnerships between banks and NBFCs.

The alignment of regulations, particularly LTV norms, has reduced the regulatory arbitrage that previously existed between different lender categories. As a result, the agency expects the co-lending model to gain meaningful traction in the coming years.

The model allows banks and NBFCs to leverage their respective strengths in funding, underwriting and distribution, particularly in the IGL segment. Ind-Ra believes this could support portfolio growth without materially weakening underlying credit quality.

However, underwriting quality and end-use monitoring will remain key differentiators. The rapid expansion of gold lending through dedicated branches and existing branch networks could also create a shortage of trained manpower.

Asset quality remains resilient

Despite rapid growth, Ind-Ra expects credit risks in bank gold loan portfolios to remain manageable. Gold loans remain among the more resilient retail credit products, with portfolio-at-risk levels across banks remaining comfortable.

Loss severity in gold loan defaults is also expected to be materially lower than in unsecured personal loans because of stronger collateral coverage and recovery prospects.

Ind-Ra said lenders should nevertheless maintain disciplined underwriting, conservative LTV ratios, robust collateral buffers and rigorous borrower assessments to preserve asset quality through credit cycles.