Large non-bank lenders flag early signs of stress in gold loan portfolios

India’s booming gold loan market is showing early signs of stress, with Bajaj Finance and Piramal Finance flagging concerns over repayment delays and lending to borrowers who are already overdue on loans from other financial institutions.

The concerns arise as banks and non-banking financial companies (NBFCs) aggressively expand their gold loan portfolios, drawn by the security of the underlying collateral.

In 2025-26, between 15 per cent and 23 per cent of gross gold loan disbursements across the industry went to borrowers who were more than 90 days overdue on at least one of their other outstanding loans, Jairam Sridharan, managing director and chief executive officer of Piramal Finance, said during the company’s earnings call. The amount of disbursements to such borrowers was estimated at ₹4.7 trillion.

“It is a shockingly high number,” Sridharan said, adding that the share of such disbursements in Piramal Finance’s own portfolio was below 1 per cent in October so far. The company does not disburse gold loans to borrowers who are more than 90 days past due, he said.

“Today, presence of a gold loan on file is not an indicator of higher risk on the portfolio, but these data points are worth noting and tracking,” Sridharan said.

The disclosure has drawn attention to a potential weakness in the rapid expansion of gold-backed lending: Borrowers facing repayment difficulties could be taking loans against their jewellery from one lender to clear overdue payments with another, without any meaningful improvement in their ability to service debt.

Suresh Ganapathy, managing director and head of research at Macquarie Capital, said gold had become the second-largest retail lending category after mortgages, accounting for nearly 28 per cent of the non-housing retail loan book.

He said lenders needed to look beyond the security offered by gold and assess whether borrowers had the capacity to repay. While the collateral could help lenders recover their dues, a fresh loan does not necessarily resolve the borrower’s underlying financial stress.

“Their basic ability to pay hasn’t changed,” Ganapathy said, describing the possibility of borrowers pledging gold to repay overdue loans elsewhere.

Bajaj Finance, which has a gold loan portfolio of around ₹24,000 crore, reported an increase in assets classified under Stage 2 in the July-September quarter. The company attributed ₹1,047 crore of the increase to short-tenure gold loan schemes introduced after the Reserve Bank of India’s revised gold loan guidelines came into effect.

The lender stopped offering these short-tenure schemes in August. It said the movement was largely transitory and that it did not expect the increase to affect credit costs.

Rajeev Jain, vice-chairman and managing director of Bajaj Finance, said the company had taken a different approach to managing the portfolio, preferring to address repayment risks early rather than rely on the auction of pledged gold.

“It’s better to manage it through risk rather than manage it through auction,” Jain said during the earnings call, adding that the company remained committed to growing its gold loan business.

Jain also pointed to the industry’s approach to delinquencies, saying lenders were generally more comfortable allowing loans to move into Stage 3 before initiating auctions. Bajaj Finance, however, does not consider auctions an appropriate measure of portfolio management.

The company said Stage 2 and Stage 3 assets together increased by ₹1,601 crore during the quarter, with the short-tenure gold loan schemes accounting for a significant part of the movement in Stage 2. It said around ₹550 crore had already been resolved and moved back into Stage 1. For an NBFC, Stage 1 assets are standard assets which has been over 30 days overdue. Stage 2 assets are those which are between 31–90 days overdue. Stage 3 assets are credit-impaired assets, generally more than 90 days overdue, classified as non-performing assets (NPAs).

The developments are noteworthy given the speed at which lenders have expanded their gold loan books. Outstanding gold loans from banks rose 83 per cent year-on-year to around ₹5.6 trillion in August 2026, while gold loans from NBFCs increased 69 per cent to around ₹3.6 trillion, according to RBI data.

Ganapathy said the ability to sell pledged gold could keep loss-given-default levels low in the segment. However, a sharp correction in gold prices accompanied by a rise in defaults could test the assumption that collateral would adequately protect lenders.

If many borrowers default at the same time, lenders could be forced to auction large quantities of gold, potentially putting pressure on recoveries. The process also comes with operational constraints, including rules governing the location of gold auctions.

Ganapathy questioned whether banks and NBFCs should effectively be financing the repayment of overdue loans owed to other lenders. He warned that lenders rushing into the business could be underestimating the risks associated with borrowers taking on additional debt.

The risk may also vary across customer segments. Jinay Gala, associate director at India Ratings, highlighted the difference between borrowers in smaller cities, for whom gold may be their principal financial asset, and urban customers taking larger-ticket loans for working capital or income generation. Their repayment capacity and the extent to which they are already leveraged could differ materially.

Ganapathy said losses on gold loans could remain low unless tail risks materialise. The broader concern, however, is the build-up of consumer leverage and whether the rapid expansion of gold-backed credit is supporting sustainable demand or allowing borrowers to roll over debt.