Gold loans show early stress as NBFCs flag delinquencies

India's non-bank lenders are flagging early signs of stress in loans against gold, even as the segment keeps growing. Bajaj Finance and Piramal Finance both pointed to repayment troubles in the September quarter, raising questions about risks building up in one of the fastest-growing parts of India's credit market. Gold loans have become a major engine of growth for non-bank finance companies (NBFCs), but the same lenders are now warning that the book is showing strain.

Bajaj Finance said its stage-2 and stage-3 assets rose by Rs 1,601 crore in the September quarter, of which Rs 1,047 crore came from gold loans. Stage-2 assets are loans where credit risk has risen but which have not yet turned non-performing, while stage-3 assets are loans with serious repayment problems. The increase was partly driven by short-tenure gold loans that required borrowers to visit branches every three months for repayment or rollover. Bajaj discontinued those loans in August and is shifting toward longer-tenure loans.

"A short-term loan doesn't work for the customer, doesn't work for the company, and is not sustainable," Bajaj Finance managing director Rajeev Jain said at the company's earnings call on Monday. Despite the stress, Bajaj does not expect the transitional increase in stage-2 gold loans to affect credit costs. Adjusting for the transient movement in gold loans, its stage-2 and stage-3 assets sequentially improved to 1.88% of total assets in the September quarter, from 1.90%.

Piramal warning adds to gold loans concerns

Piramal Finance warned that a significant share of industry disbursements has gone to borrowers with a history of serious delinquencies. The warning came as the two major traditional gold financiers, Muthoot Finance and Manappuram Finance, had not yet declared their quarterly results. The gold loans flagged by the lenders are part of a market that has expanded rapidly on the back of rising gold prices and strong demand for quick, collateralised credit.

The warnings landed as gold prices retreated from recent highs. Gold had crossed Rs 1.5 lakh ahead of Dussehra, then eased, and slipped to a one-week low. Shares of major gold loan companies fell on Wednesday, with Muthoot Finance down 2.97%, Manappuram Finance down 5.62% and IIFL Finance down 4.57%, showing how sensitive these stocks are to the price of the collateral behind their books.

Why gold loans grew so fast

The strong growth in gold loans over the past two years has been fuelled by a sustained rise in gold prices, which let borrowers increase their loans against existing collateral. Prakash Agarwal, partner at Gefion Capital, said many borrowers may have already exhausted their gold collateral and could face problems in servicing or repaying their loans, particularly where repayment is structured around short maturities.

A September report from Motilal Oswal found that growth in India's gold loan market has been driven more by higher gold prices and repeat borrowing than by new customers. The combined quantity of gold pledged with Muthoot Finance and Manappuram Finance has stayed around 260 to 265 tonnes over the past couple of years, while their combined customer base has stayed around 9 million. Existing customers accounted for 82% of gold loan originations in 2025, up from 76% in 2022, and customers who already had a gold loan accounted for 90% of originations. The report called the rising share of repeat customers a key risk, warning of overleveraging in the sector.

Fitch's Goel pointed to an operational challenge for newer entrants as well. Established players such as Muthoot Finance and Manappuram Finance have years of experience in managing bad loans and auctioning pledged gold, while newer players may need time to develop similar abilities. Since the start of the fiscal year in April, gold prices in India have declined by 3%, compared with a 65% gain in FY26.

The overall gold loan market has expanded nearly four times over the past five years to Rs 18.6 trillion as of March 2026, recording 50% year-on-year growth in FY26. Early-stage delinquencies among NBFCs improved to 0.56% in March 2026 from 2.15% in March 2025, according to the Motilal Oswal report. Lenders' appetite to grow the portfolio remains strong despite the early warning signs.