For Indian households, gold is not just jewellery but also an important source of funds during financial emergencies. With demand for gold loans rising, banks and non-banking financial companies (NBFCs) are expanding their gold loan businesses. Although pledged gold provides security for a loan, it does not guarantee that the borrower will be able to make repayments on time. Recent results from some large lenders have offered early signs of delayed repayments and rising debt among customers.
Let us understand what is happening in the gold loan market and why it matters to lenders and investors.
What’s Happening?
According to RBI data, banks’ gold loans rose 83% YoY to approximately Rs 5.6 lakh crore in August 2026. During the same period, NBFCs’ gold loans increased 69% to nearly Rs 3.6 lakh crore. Gold loans are now the second-largest category of retail lending after mortgages, accounting for approximately 28% of the non-housing retail loan book.
The concern is not so much the growth of the business as the quality of the loans being issued. Some customers may be taking out new gold loans to repay existing debts. In such cases, the pledged gold provides security to the lender, but the new loan does not necessarily improve the borrower’s ability to repay.
Pressure in NBFCs’ Gold Loan Portfolios
In Shriram Finance’s gold loan portfolio, Stage 3 loans overdue by more than 90 days rose to 3.12% at the end of September, compared with 2.57% in June and 2.28% a year earlier. This suggests that some customers are finding it difficult to keep up with their repayments.
Bajaj Finance recorded a combined increase of Rs 1,601 crore in Stage 2 and Stage 3 assets during the July–September quarter. Of this, Rs 1,047 crore was attributable to an increase in Stage 2 assets linked to its short-tenure gold loan scheme.
Subsequently, repayments of Rs 550 crore helped these assets return to Stage 1. Overall, Stage 2 and Stage 3 assets increased by 15 basis points compared with the previous quarter. The company said short-term gold loans overdue by more than 30 days contributed significantly to this increase. Bajaj Finance subsequently stopped offering short-term gold loans in August.
Use of Gold Loans to Repay Other Debts
According to industry data, an estimated 15% to 23% of total gold loan disbursements in the financial year 2025-26 went to customers who were overdue by more than 90 days on another loan. The value of these disbursements was approximately Rs 4.7 lakh crore. This raises concerns that borrowers may be using new loans to keep up with existing debt rather than reduce their overall financial burden.
As mentioned in Reuters, according to Piramal Finance CEO Jairam Sridharan, approximately 35% of the company’s customers also had gold loans from other financial institutions. However, in October, less than 1% of the company’s own gold loan disbursements went to customers who were overdue by more than 90 days on another loan. He said that having a gold loan from another lender is not, by itself, a sign of higher risk, but these figures need to be monitored.
Under RBI rules effective from 1 April 2026, the maximum loan-to-value (LTV) ratio for gold loans given for consumption is 85% for loans up to Rs 2.5 lakh, 80% for loans above Rs 2.5 lakh and up to Rs 5 lakh, and 75% for larger loans. If gold prices fall, the value of the pledged gold could decline, weakening the lender’s security in the event of a default.
What Does This Mean for Investors?
Bajaj Finance’s gold loan portfolio is worth approximately Rs 24,000 crore. During the July–September quarter, the company’s consolidated profit after tax rose nearly 30% YoY. Even so, on 21 October, its shares were trading 3.2% lower at Rs 926.80, while the Nifty 50 was down 0.6%.
On the same day, Piramal Finance’s profit after tax rose 66% to Rs 5.45 billion, and its shares gained 3.7% to Rs 2,019.50. These figures show that a company’s financial performance and the stock market’s reaction do not always move in the same direction. Investors should look beyond gold loan growth and pay attention to overdue loans and the overall quality of the loan portfolio.
What’s Next?
As the gold loan market expands rapidly, a key question is whether banks and NBFCs are helping borrowers repay their existing debts to other lenders by extending new loans. According to Business Standard, Macquarie Capital’s MD and Head of Research, Suresh Ganapathy, believes that companies expanding rapidly in this segment may underestimate the risk of rising debt among the same customers.
However, borrowers’ financial circumstances can vary significantly. According to India Ratings’ Jinay Gala, gold may be the primary financial asset for many families in smaller towns, while urban customers may use it to secure larger loans for business purposes or to increase their income. As a result, the repayment capacity and existing debt levels of these two groups may differ.
Ganapathy believes that losses from gold loans could remain limited as long as major risks do not emerge. The bigger question, however, is whether the growing gold loan business is supporting economic activity or pushing financially stressed borrowers to take out new loans to repay old debts.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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