Synopsis

Gold loan NPAs may increase as lenders shift to monthly installments. The overall gold loan market is projected to grow over thirty percent. This expansion will take the market to thirty lakh crore by March 2028. NBFCs' market share is expected to rise to twenty-three percent by 2027-28. New players and banks entering the segment support this strong growth outlook.

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Kolkata: Gold loan non-performing assets (NPAs) for non-banking financial companies (NBFCs) are likely to rise with the lenders making a structural shift from bullet payments to monthly installment schemes, while the overall market is projected to grow over 30% in the next two years to Rs 30 lakh crore by March 2028, analysts with ICRA said Wednesday.

The rise in bad loans may not however translate into credit loss as these loans can be recovered by auctioning of the yellow metal, they said. The loans with bullet payment are more vulnerable to price movement and an overwhelming majority of gold loans are being repaid in lump sum at the end of the maturity period.

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The rating company however did not put any number to the likely NPA ratio, which stood at 3% at the end of March. The cumulative gold loan NPA for banks was around 0.5%.

"Change in the product to a regular paying loan can lead to higher overdues in the near term, as borrowers adjust to the new requirement vis-a-vis bullet payments in the past," R Srinivasan, ICRA's sector head for financial sector ratings, said.

"Adequate risk control measures are thus crucial as entities facing headwinds due to competitive intensity can end up offering higher LTV loans in a scenario where gold prices exhibit adverse volatility," he suggested.

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ET in its edition dated June 29 highlighted that a sharp pirce correction of the yellow metal triggered margin calls on some gold loans with bullet repayment.

"The loans with bullet payment are vulnerable to price volatility. About 90% of gold loans provided by NBFCs were linked to bullet payment as of March," ICRA's senior vice president and co-group head, A M Karthik said.

Since the outstanding principal does not decline during the loan period, loans with bullet payment see a contraction in collateral value when price falls.

Gold-backed agri loans also come with bullet payment while their asset classification norm is more liberal as the repayment is aligned with crop cycles and harvest-linked schedules.

ICRA projected that e organised gold loans by banks and NBFCs to expand at a compound annual growth rate of over 30% during 2026-27 to 2027-28, crossing Rs. 30 lakh crore by March 2028 from around Rs 18 lakh crore in March 2026

The market share of NBFCs is projected to continue to rise to 23% by 2027-28, while increasing competitive intensity could exert pressure on their business yields and limit upside, the rating company said.

“The entry of new players and large NBFCs in this gold loan space – whether organically or through acquisitions – along with their plans to significantly expand their branch networks, supports the strong growth outlook for this segment, particularly amid the stress in unsecured lending in the recent past," Srinivasan said.

"Banks are also steadily widening their gold loan offerings across their extensive branch networks, which should further support segmental growth," he added.