The rapidly growing gold loan market in India is showing early signs of strain. Companies Bajaj Finance and Piramal Finance are signaling payment delays and issuing loans to borrowers who have already defaulted on payments for over 90 days at other financial institutions.
These concerns arise against the backdrop of aggressive portfolio expansion of gold loans by banks and Non-Banking Financial Companies (NBFCs), attracted by the reliability of the pledged jewelry. However, creditors and analysts warn that the collateral may offer limited protection if borrowers take on new debt to service existing obligations rather than improving their financial standing.
According to Jairam Sridharan, Managing Director and CEO of Piramal Finance, between 15 and 23 percent of the total volume of gold loan disbursements in the industry in 2025-26 was directed to borrowers who had defaulted on at least one other outstanding loan for more than 90 days. He estimated the volume of such disbursements at 4.7 trillion rupees. Sridharan noted during the company's earnings call that this was a 'shockingly high figure.' He also added that such borrowers constituted less than 1 percent of Piramal Finance's own gold loan disbursements in October, emphasizing that the company does not lend to borrowers with more than 90 days of delinquency.
These figures point to a potential vulnerability in the rapid expansion of gold-backed lending: borrowers struggling with repayment may pledge jewelry to one lender to cover overdue loans with another, without achieving significant improvement in their debt servicing capacity.
Suresh Ganapathy, Director of Development and Head of Research at Macquarie Capital, stated that gold loans have become the second-largest category of retail lending in India after mortgages, accounting for nearly 28 percent of the unsecured retail loan portfolio. He advised creditors to look beyond the collateral provided by gold and assess borrowers' repayment capacity. While pledged jewelry can help creditors recover debts, it does not eliminate the risk of borrowers becoming increasingly indebted.
Bajaj Finance, whose gold loan portfolio stands at approximately ₹24,000 crore, reported an increase in Stage 2 assets in the quarter from July to September. For an NBFC, Stage 1 assets are loans with delinquency up to 30 days; Stage 2 assets are those with delinquency from 31 to 90 days; and Stage 3 assets are non-performing loans, typically with delinquency exceeding 90 days, classified as NPAs. The company attributed the rise of ₹1,047 crore to the introduction of short-term gold loan schemes following the implementation of revised gold loan guidelines by the Reserve Bank of India. However, in August, the company discontinued offering these short-term schemes, stating that the deterioration was mainly temporary and not expected to affect credit costs.
Rajeev Jain, Vice Chairman and Director of Bajaj Finance, stated that the company has adopted a different approach to managing repayment risks, preferring early intervention over relying on auctions of pledged gold. During the earnings call, he said, 'It is better to manage this through risks, not through auction,' adding that the company remains committed to developing its gold loan business. He also pointed out differences in how creditors handle delinquencies, noting that they generally allow loans to move to Stage 3 more readily before initiating auctions. However, Bajaj Finance does not consider auctions to be a suitable primary portfolio management tool.
Stage 2 and Stage 3 assets at the company increased by ₹1,601 crore during the quarter, with short-term gold loan schemes playing a significant role in the shift to Stage 2. The company reported that about ₹550 crore had already been settled and moved back to Stage 1. These changes are significant given the pace of gold loan portfolio expansion by lenders. According to the RBI, outstanding bank gold loans grew by 83 percent year-on-year to approximately ₹5.6 trillion as of August 31, 2026, while NBFC loans increased by 69 percent to approximately ₹3.6 trillion.
The segment's reliance on collateral can help limit losses. Ganapathy noted that the ability to sell pledged gold can support low loss levels upon default, but warned that a sharp correction in gold prices coinciding with rising defaults could call into question the assumption that collateral adequately protects creditors. He also questioned whether banks and NBFCs should actually finance the repayment of overdue loans owed to other creditors. He concluded that institutions rushing to expand in this segment risk underestimating the danger of borrowers taking on additional debt.
Risks can also vary depending on customer segments. Jinay Gala, Associate Director at India Ratings, highlighted the difference between borrowers in small towns, for whom gold may be their primary financial asset, and urban customers taking large loans for working capital or income generation. Their repayment capacity and existing debt levels can differ significantly. Ganapathy argued that losses on gold loans could remain low if extreme risks do not materialize. However, the broader issue is whether the rapid expansion of gold-backed lending is financing sustainable economic activity or allowing financially burdened borrowers to refinance debt.