Gold Loans Are Booming, but Q2 Results Show Early Stress at Shriram and Bajaj Finance
Shriram Finance and Bajaj Finance flagged rising gold loan stress in Q2 FY27 even as profits jumped. Here is what the numbers say and what to watch.
Profits at India's big lenders are rising fast, yet two Q2 FY27 results this week carried the same warning: gold loans are starting to show cracks. For anyone tracking credit risk, a loan type long seen as "safe" because it is backed by gold is now worth a closer look.
What the results showed
Shriram Finance reported consolidated net profit of Rs 3,683.81 crore for the September quarter, against Rs 2,314.16 crore a year earlier, and net interest income up 38.2%. Alongside that, Deccan Chronicle reports its Stage 3 gold loans rose to 3.12%, from 2.57% in Q1 FY27 and 2.28% a year earlier.
Bajaj Finance reported on 21 October that consolidated profit rose 29% to Rs 6,367 crore, with assets under management up 26% to Rs 5.84 lakh crore. Its gross NPA was 1.33% and net NPA 0.53%. Yet its Stage 2 and Stage 3 assets rose 15 basis points from the previous quarter, which the company linked mainly to short-tenor gold loans that it has since stopped offering. Business Today reports the shares closed 3.33% lower at Rs 925.10 that day.
Terms in plain language
Stage 2 and Stage 3 assets come from the accounting system lenders use to grade loans. Stage 1 loans are performing normally. Stage 2 loans show early warning signs, such as payments overdue by 30 or more days. Stage 3 loans are credit-impaired, usually 90 days or more overdue. Think of it as a traffic light: green, amber, red.
A basis point is one hundredth of a percentage point, so 15 basis points is 0.15 percentage points.
Why gold loans can still go bad
Gold loans are secured, so losses should be limited if the borrower defaults and the gold is sold. The risk sits elsewhere. If gold prices fall, the collateral cushion shrinks. And if lenders are lending to borrowers who are already stretched, a secured loan can still turn into a long, costly recovery.
That second point is where the debate is sharpest. Piramal Finance CEO Jairam Sridharan said that 15 to 23 per cent of industry gold loan disbursements over the past year went to customers already 90 or more days past due on at least one loan. He put the amount at about Rs 4.7 lakh crore in FY26 and called it "shockingly high". That is one executive's estimate, and Piramal has a business interest in how the sector is perceived, so treat it as a signal to investigate, not a verified industry figure. Piramal says its own figure is under 1% because it avoids customers more than 90 days past due.
The wider backdrop
A Business Standard outlook piece from 9 October said analysts expect asset quality to be the key thing to monitor in the second half of FY27, with higher funding costs squeezing margins after an RBI rate hike. It also listed gold loans among segments that could face stress if geopolitical tension raises commodity prices. The same piece expected gold lenders' loan books to grow 35 to 40% if non-gold products are counted, which is fast growth, and fast growth is when underwriting discipline gets tested.
What to watch next
Look for three things in coming results: whether Stage 2 gold balances keep rising, whether lenders tighten checks on existing delinquent borrowers, and whether credit costs (the provisions set aside for bad loans) start to climb. One quarter of slightly higher stress is not a trend, and both firms still report strong overall asset quality.
Key takeaways
- Shriram's Stage 3 gold loans reportedly rose to 3.12% from 2.57% in a quarter; Bajaj's Stage 2 and 3 assets rose 15 bps on short-tenor gold loans.
- Collateral lowers loss severity but does not remove the risk of lending to over-leveraged borrowers.
- The claim that a large share of gold loans go to already-delinquent customers is one CEO's estimate and not independently verified.
Sources
- [Deccan Chronicle: Shriram Finance reports rise in bad gold loans in Q2FY27](https://www.deccanchronicle.com/nation/shriram-finance-reports-rise-in-bad-gold-loans-in-q2fy27-1998243)
- [Business Today: Bajaj Finance shares fall 4% as lender flags rise in overdue gold loans](https://www.businesstoday.in/markets/stocks/story/bajaj-finance-shares-fall-4-as-lender-flags-rise-in-overdue-gold-loans-562851-2026-10-21)
- [Business Standard: Asset quality remains key monitorable for NBFCs in H2FY27](https://www.business-standard.com/amp/finance/news/nbfc-outlook-higher-cost-of-funds-could-compress-spreads-and-lower-nims-1261009005261.html)
Tags: Gold Loans NBFC Asset Quality Credit Risk Q2 FY27