Gold Loans Gain Traction in India Over Personal Loans

If you’re looking to borrow a few lakh rupees, you might be seeing a new trend emerging: more people are choosing gold loans over personal loans. This significant shift is being driven by a notable difference in interest rates.

This change is impacting major lenders, with the State Bank of India (SBI) noting it affects their personal loan segment, known as “Xpress Credit.” Gold loans typically offer an interest rate approximately 3 percentage points lower than personal loans.

Key Gold Loan Numbers at SBI

• SBI’s combined personal and agricultural gold-loan portfolio: Rs 3.1 lakh crore as of June.
• Personal gold loans alone within SBI’s portfolio: Approximately Rs 1.25 lakh crore as of June.
• Typical yields on gold loans: Between 8.5% and 8.9%.

It’s not just SBI that is observing this trend; other prominent banks are also actively expanding their gold loan businesses. Institutions like Punjab National Bank, Central Bank of India, Kotak Mahindra Bank, HDFC Bank, and Federal Bank are all growing their presence in this segment.

The Broader Impact on Banking

Punjab National Bank, for instance, saw its gold-loan exposure more than double by June. They reported an increase to Rs 31,818 crore and have ambitious plans for the future.

• Punjab National Bank’s gold-loan exposure in June: Rs 31,818 crore.
• Punjab National Bank’s target for FY27: Rs 59,000-60,000 crore.

For SBI, the average gold loan amount disbursed is usually between Rs 2.5 lakh and Rs 3 lakh. The bank also maintains a loan-to-value ratio below 55-56% for these loans.

SBI considers the growth in gold loans an opportunistic venture, highlighting its benefits for the bank itself. This portfolio carries virtually zero risk weight and does not require capital allocation, making it an attractive option for lenders.

This trend shows that when you’re looking to borrow, exploring all your options, especially those with lower interest rates, can make a real difference to your finances.