India’s gold loan sector faces scrutiny over credit quality risks amid rapid growth

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India’s gold loan risks

Highlights

As of 31 August 2026, banks’ outstanding gold loans had reached ₹5.6 lakh crore and NBFCs’ ₹3.6 lakh crore; the market is projected to grow at 30% annually through March 2028.
In FY26, 15%–23% of gold loan disbursements went to borrowers who were already more than 90 days overdue on another loan, with such disbursements totalling ₹4.7 lakh crore.
The new tiered loan-to-value rules took effect on 1 April 2026, while major companies such as Tata Capital, Godrej Capital, Aditya Birla Capital and L&T Finance are expanding aggressively.

This article was translated from the original. Read the original version by our correspondent here.

Scale of growth and signs of borrower stress

As Economic Times reported, citing Reuters and Reserve Bank of India data, growth in the gold loan segment remains strong in 2026, although it is moderating somewhat following a tighter regulatory framework. As of 31 July 2026, bank loans against gold jewellery had risen 88.1% to ₹5.52 lakh crore, while by 31 August, banks’ outstanding gold loans had reached about ₹5.6 lakh crore and those of NBFCs had reached ₹3.6 lakh crore.

The segment is now emerging as a major component of the retail lending market. Citing Suresh Ganapathy of Macquarie Capital, TOI said gold loans account for around 28% of non-housing retail credit, making them the second-largest retail segment after mortgage loans. According to a recent ICRA report, the market could grow by more than 30% over the next two years to reach ₹30 lakh crore by March 2028.

Even so, signs of borrower stress are emerging alongside this rapid expansion. Jairam Sridharan, Managing Director and Chief Executive Officer of Piramal Finance, said on the company’s second-quarter earnings call that 15% to 23% of industry gold loan disbursements in FY26 went to borrowers who were more than 90 days overdue on at least one other loan. According to him, such disbursements amounted to ₹4.7 lakh crore, although he said Piramal itself does not lend to customers more than 90 days overdue, and such customers accounted for less than 1% of its borrowers so far in October.

These indicators do not, on their own, mean that this volume of loans has turned bad, but they point to a vulnerable borrower base. If customers are pledging jewellery to repay old personal or other loans, this does not increase income generation; it merely reshuffles liabilities. Bajaj Finance has also attributed an increase in early delinquencies to short-tenure products, although the company says it does not expect a significant impact on credit costs.

Regulatory framework, competition and the challenge of recovery

The Reserve Bank of India has already tightened oversight of the segment. The Lending Against Gold and Silver Collateral Directions, issued in June 2025, came into effect on 1 April 2026, replacing the previous uniform 75% loan-to-value limit with a tiered framework. Under the new rules, loans up to ₹2.5 lakh can have a loan-to-value ratio of 85%, loans from ₹2.5 lakh to ₹5 lakh can have a ratio of 80%, and larger loans can have a ratio of up to 75%.

The rules have also capped the tenure of consumption-based bullet-repayment loans at 12 months. This affects both the amount available to borrowers and the repayment structure, while the regulator’s aim is to maintain a safety margin between the value of the pledged gold and the loan amount. However, if gold prices fall sharply after a loan is disbursed, that margin may narrow.

Meanwhile, new players are entering the market rapidly. In July, Tata Capital announced that it would acquire an 88.6% stake in Yogakshemam Loans, while Godrej Capital acquired the gold loan business of Kanakadurga Finance. ET reported in August that Aditya Birla Capital aims to set up 200 to 300 dedicated gold loan branches by March 2027, while L&T Finance plans to add 500 branches in the current financial year.

This competition could deepen the market, but it could also become a weakness if lenders prioritise rapid disbursement over borrower assessment. The presence of collateral typically makes losses on gold loans lower than on unsecured personal loans, but it does not offer complete protection in every situation. If defaults rise at the same time as gold prices fall sharply, large-scale auctions could put pressure on recoveries and create operational challenges.

Over the next few quarters, attention will therefore be on whether early delinquencies turn into non-performing assets and whether lenders tighten their underwriting. The segment still has room to grow, but its long-term resilience will depend on whether that growth is driven by genuine credit demand or by the reshuffling of financial stress.

Our previous report discussed indirect evergreening, in which some undercapitalised banks appear to use related parties to move funds around, delaying the identification of bad loans and signs of default. According to the study’s findings, such arrangements carry a higher-than-usual risk of default, while creating the appearance of recovery and better asset quality. This context shows that during periods of rapid lending, not only apparent recoveries but also borrowers’ actual financial positions and cash flow patterns are crucial to financial stability.

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