India's gold loan market is showing signs of strain as prices for the precious metal have fallen. Major non-bank lenders, including Bajaj Finance and Piramal Finance, reported early repayment troubles among borrowers. These concerns arise amid increasing household debt and declining gold prices, which are now at a one-week low.
Key Details
Bajaj Finance noted a rise in stage-2 and stage-3 assets, indicating credit risk among borrowers. In the September quarter, these assets increased by ₹1,601 crore, with ₹1,047 crore attributed to gold loans. The company has shifted focus from short-tenure loans, which require frequent repayments, to longer-term options. Managing Director Rajeev Jain stated, "A short-term loan doesn’t work for the customer, doesn’t work for the company, and is not sustainable."
Shares of major gold financiers also declined on Wednesday. Muthoot Finance fell by 2.97%, while Manappuram Finance dropped 5.62%. IIFL Finance saw a decline of 4.57%. This downturn in stock prices reflects investor concerns over the current state of the gold loan market.
Background
Despite these early warning signs, lenders remain optimistic about portfolio growth. Bajaj Finance does not expect the transitional increase in stage-2 gold loans to significantly affect credit costs. The company reported that its overall stage-2 and -3 assets improved to 1.88% of total loans in the September quarter, down from 1.90% in the previous quarter.
Related coverage: Gold Prices Decline as Inflation Concerns Weigh on Markets, Indian Markets Drop Over 1% as Investors Lose ₹4 Lakh Crore.
The decline in gold prices is likely to affect the profitability of gold loan companies, impacting stocks in the sector. Investors may see increased volatility in shares of lenders like Muthoot Finance and Manappuram Finance as repayment issues emerge. Watch for upcoming quarterly results from these companies, which may provide further insight into the state of the gold loan market.
Based on reporting by: livemint.com, moneycontrol.com