For some SBI borrowers looking for a few lakh rupees, the cost of borrowing is influencing the choice between a personal loan and a gold loan. State Bank of India said some of its regular personal-loan customers are choosing to pledge gold instead, taking advantage of an interest-rate difference of almost 3 percentage points.
SBI said its normal Xpress Credit customers — its personal-loan borrowers — are opting for gold-backed loans, keeping growth in Xpress Credit from reaching double-digit levels.
“We have seen that many of our normal Xpress Credit customers are opting to take a gold loan. Obviously, there's an interest rate arbitrage, almost 3%,” SBI Chairman Challa Sreenivasulu Setty said during the bank's earnings call.
The comment offers a different way of looking at the rapid growth of gold loans across banks. Rather than reflecting only new demand for gold-backed borrowing, some of the growth could also be coming from borrowers switching from personal loans to gold loans, based on SBI's observation.
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The 3% Gap
SBI's personal and agricultural gold-loan book had crossed Rs 3.1 lakh crore as of June, with personal gold loans accounting for about Rs 1.25 lakh crore and agricultural gold loans about Rs 1.85 lakh crore. The bank said gold-loan yields typically range between 8.5% and 8.9%, with personal gold loans carrying a slightly higher yield than agricultural loans.
Setty said gold loans were affecting the bank's personal-loan growth. SBI had been seeing good sourcing and disbursements in Xpress Credit, but the business was not moving into double-digit growth because of gold loans.
“Somewhere this gold loan juggernaut will slow down, and some moment will happen to Xpress Credit,” Setty said.
The comment links the recent expansion of gold loans with the pace of growth in SBI's Xpress Credit business.
Gold Gains Ground
SBI is not the only bank expanding its gold-loan business.
Punjab National Bank said its gold-loan exposure had more than doubled to Rs 31,818 crore in June from Rs 15,694 crore a year earlier. The bank said its gold-loan book grew 103% year-on-year and that it had added another 3,400 branches to its gold-loan network. It expects the portfolio to reach Rs 59,000 crore to Rs 60,000 crore by the end of FY27.
Central Bank of India also identified gold loans as one of the engines of credit growth. Its gold-loan book stood at Rs 36,000 crore, and the bank has created a dedicated gold-loan division.
Kotak Mahindra Bank said gold loans remained a small business but had become an important focus area, with growth supported by its branch network and improvements in processing.
HDFC Bank said gold loans had started contributing to retail growth and were growing well, although they remained a small part of its overall retail portfolio.
Federal Bank, meanwhile, said it expected its gold-loan growth to continue. The bank said its loan-to-value ratio remained around 60% and that it calibrates lending per gram of gold to market prices and the weighted average of the previous 30 days.
The banks' comments point to a wider expansion of gold-backed lending. However, SBI is the only bank among the earnings-call transcripts reviewed here that explicitly said its regular personal-loan customers were switching to gold loans because of the rate difference.
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Why Gold?
SBI said its average gold-loan ticket is around Rs 2.5 lakh to Rs 3 lakh. Its loan-to-value ratio is below 55%-56%, according to management.
“Generally, the people who come to us are basically coming for the price,” Setty said.
SBI also said its gold-loan portfolio has virtually zero risk weight and does not require capital allocation. Setty described the growth in gold loans as opportunistic and said the product was not part of SBI's core portfolio.
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