Gold loans power Small Finance Banks' growth as microfinance asset quality weakens

Small Finance Banks (SFBs) shifted sharply toward secured lending — particularly gold loans — in FY26 to stabilize asset quality and earnings after elevated bad loans in unsecured microfinance. Regulators have pushed for diversification, and the RBI trimmed mandatory priority-sector lending targets to give SFBs flexibility. ESAF’s secured share rose to 61% and its gold-loan book jumped 55% YoY to ₹8,858 crore (39.5% of its portfolio). Jana SFB reported a 141% YoY rise in gold loans to ₹2,358 crore. Aggregate SFB microfinance portfolios contracted to ₹51,800 crore at March-end from ₹55,700 crore a quarter earlier, while larger private banks and NBFCs expanded micro-lending. The trend reduces unsecured credit exposure and may improve long-term stability for SFBs, while supporting continued demand for gold-backed lending products.