India’s fast-growing gold loan market is showing early signs of stress, with Bajaj Finance and Piramal Finance flagging repayment delays and lending to borrowers already more than 90 days overdue on loans from other financial institutions.
The concerns arise as banks and non-banking financial companies (NBFCs) aggressively expand their gold loan portfolios, attracted by the security of pledged jewellery. But lenders and analysts warn that the collateral may offer limited protection if borrowers are taking on fresh debt to service existing obligations rather than to improve their financial position.
Between 15 per cent and 23 per cent of gross gold loan disbursements across the industry in 2025-26 went to borrowers who were more than 90 days overdue on at least one other outstanding loan, according to Jairam Sridharan, managing director and chief executive officer (MD & CEO) of Piramal Finance. He estimated the value of such disbursements at ₹4.7 trillion.
“It is a shockingly high number,” Sridharan said during the company’s earnings call.
He added that such borrowers accounted for less than 1 per cent of Piramal Finance’s own gold loan disbursements so far in October. The company does not lend to borrowers who are more than 90 days past due, he said.
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“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.
These figures highlight a potential vulnerability in the rapid expansion of gold-backed lending: Borrowers struggling to meet repayments may be pledging jewellery to one lender to clear overdue loans with another, without any meaningful improvement in their underlying ability to service debt.
Suresh Ganapathy, MD and head of research at Macquarie Capital, said gold loans had become India’s second-largest retail lending category after mortgages, accounting for nearly 28 per cent of the non-housing retail loan book.
Lenders need to look beyond the security provided by gold and assess borrowers’ repayment capacity, he said. Although pledged jewellery can help lenders recover their dues, it does not eliminate the risk that borrowers are becoming more heavily indebted.
“Their basic ability to pay hasn’t changed,” Ganapathy said, describing the risk of borrowers pledging gold to repay overdue loans elsewhere.
Bajaj Finance, which has a gold loan portfolio of about ₹24,000 crore, reported an increase in assets classified as Stage 2 in the July-September quarter. For an NBFC, Stage 1 assets are loans up to 30 days overdue; Stage 2 assets are 31-90 days overdue; and Stage 3 assets are credit-impaired loans, generally more than 90 days overdue and classified as non-performing assets (NPAs).
The company attributed ₹1,047 crore of the increase to short-tenor gold loan schemes introduced after the Reserve Bank of India’s revised gold loan guidelines came into effect.
The lender stopped offering these short-tenor schemes in August. It said the deterioration was largely transient and was not expected to affect credit costs.
Rajeev Jain, vice-chairman and MD of Bajaj Finance, said the company had adopted a different approach to managing repayment risks, preferring early intervention over reliance on auctions 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.
He also pointed to differences in how lenders handled delinquencies, saying they were generally more comfortable allowing loans to move into Stage 3 before initiating auctions. Bajaj Finance, however, does not regard auctions as an appropriate primary tool for portfolio management.
Stage 2 and Stage 3 assets at the company increased by ₹1,601 crore during the quarter, with the short-tenor gold loan schemes accounting for a significant part of the movement in Stage 2. About ₹550 crore had already been resolved and moved back into Stage 1, the company said.
These developments are significant given the pace at which lenders have expanded their gold loan books. Outstanding gold loans from banks rose 83 per cent year on year to about ₹5.6 trillion as on August 31, 2026, while those from NBFCs increased 69 per cent to about ₹3.6 trillion, according to RBI data.
The segment’s reliance on collateral could help contain losses. Ganapathy said the ability to sell pledged gold could keep loss-given-default levels low, but warned that a sharp correction in gold prices coinciding with a rise in defaults could challenge the assumption that collateral would adequately protect lenders.
A wave of simultaneous defaults could force lenders to auction large quantities of jewellery, potentially putting pressure on recoveries. Auctions also face operational constraints, including rules governing where they can be conducted.
Ganapathy questioned whether banks and NBFCs should, in effect, be financing the repayment of overdue loans owed to other lenders. Institutions rushing to expand in the segment risk underestimating the dangers of borrowers taking on additional debt, he said.
The risks may also differ across customer segments. Jinay Gala, associate director at India Ratings, highlighted the distinction 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 existing levels of indebtedness could vary materially.
Ganapathy argued losses on gold loans could remain low unless tail risks materialised. The broader concern, however, is whether the rapid expansion of gold-backed credit is financing sustainable economic activity or allowing financially stretched borrowers to roll over debt.