Loans extended against gold jewellery by commercial banks continued to expand, reflecting in part the swift climb in gold prices that added to the level of comfort for mainstream lenders - relatively new players in this financing segment.Gold loans extended by commercial banks rose 68% in the first nine months of FY25 to Rs 1.72 lakh crore, compared with 12.7 % in the same period a year ago, showed the latest data published by the Reserve Bank of India (RBI).Gald assets under management for one of the major lenders, ICICI Bank, have risen 14% year-on-year, showed the ETIG database.Non-bank lenders, relatively earlier entrants in this business, saw gold loan sanctions climb to Rs 1.55 crore during April-September 2024 compared with Rs 1.32 lakh crore in the same period a year ago . Muthoot Finance and Manappuram Finance are among the active gold focused NBFCs.For Muthoot, gold assets under management rose 28 percent year-on- year until September 2024, and for Manappuram it rose 17 percent in the same period. An important factor adding to lender comfort is the rising price of gold.“Rising gold prices in the global markets along with a depreciating rupee are helping lenders to lend more amounts and also maintain the prescribed loan-to-value (LTV),” said a senior official at a rating agency. “Besides, the value of the collateral also goes up in a rising price scenario.”Surging gold prices, especially since the start of the Ukraine-Russia war in February 2022, made it possible for banks to offer higher amounts for the same quantity of gold pledged. The LTV ratio for gold loans in India is capped at 75% by the Reserve Bank of India (RBI). Put simply, borrowers can get a loan for up to 75% of the market value of their gold.Gold prices have risen around 12 percent during April- December in FY25. The surge in prices of gold, which is a collateral in such loans, allows the lender to give proportionately ( to the price rise) higher amounts at the same LTV.In case the loan turns bad, the lender gets to liquidate the collateral at higher price and minimise losses and this is adding to the lenders’ comfort. Significantly, in absolute terms these loans have doubled in two years to Rs 1.72 lakh crore as of end December 2024 from Rs 86,000 crore as of end December 2022. To be sure, the organized gold loan market is set to cross Rs 10 lakh crore in FY25 and reach Rs 15 lakh crore by March 2027, showed estimates by ratings firm Icra in September 2024.A regulatory clampdown on unsecured loans and bank loans to NBFCs through higher risk weights has resulted in more caution among lenders.But a regulatory warning to all lenders issued in September to monitor their gold loan portfolios has not stopped the banks from aggressively lending under this category. Among the many irregularities that were found by the regulators, notable among them was lack of a robust system for periodical LTV monitoring.The RBI had prohibited IIFL Finance from sanctioning, disbursing, or selling any of its gold loans in March last year citing certain supervisory concerns, but it lifted the ban later in September 2024.