Scheduled commercial banks have surpassed NBFCs in gold loan volume as of August 2026, reaching ₹5.6 lakh crore in outstanding credit. While banks benefit from lower interest rates, the trend highlights rising credit risks, with major NBFCs reporting higher delinquency rates and potential borrower distress.
Scheduled commercial banks have cemented their dominance in India’s gold loan market, reporting outstanding credit of ₹5.6 lakh crore by August 2026. This figure places banks comfortably ahead of non-banking financial companies (NBFCs), which held approximately ₹3.6 lakh crore in gold loan assets. The shift represents a significant change in the retail lending hierarchy, driven by the aggressive entry of traditional banks into a space previously dominated by specialized lenders.
The Competitive Edge of Banks
The primary driver for this migration is the cost of borrowing. Commercial banks, with their extensive branch networks and lower funding costs, are offering gold loans at interest rates that are often more competitive than those provided by NBFCs. For borrowers, the ability to access liquidity at a lower cost against gold jewellery has made banks the preferred choice for both short-term needs and larger ticket-size loans. This expansion has enabled banks to grow their retail portfolios rapidly while maintaining a relatively secure asset base, as these loans are backed by physical collateral.
Rising Risks and Borrower Distress
While the gold loan market is expanding, the current environment has brought specific challenges to the surface. Recent quarterly financial results from major players in the NBFC space—such as Bajaj Finance, Shriram Finance, and Muthoot Finance—show a concerning trend: an increase in overdue loans and what lenders categorize as Stage 2 or Stage 3 assets. These categories typically indicate that a borrower is struggling to make repayments on time.
Market data suggests that for a portion of these borrowers, gold loans are no longer being used exclusively for personal or business needs. Instead, there is evidence that some borrowers are using the liquidity from gold loans to pay off existing debts elsewhere. This practice signals potential underlying financial stress among retail borrowers, which could lead to higher defaults if gold prices face significant volatility.
Regulatory Oversight and Market Outlook
The Reserve Bank of India has responded to the rapid growth and evolving risks in this segment by implementing harmonized regulatory guidelines. These rules aim to ensure consistent practices across banks and NBFCs, particularly regarding how gold is valued, the application of Loan-to-Value (LTV) ratios, and documentation standards. By standardizing these processes, the regulator is attempting to protect borrowers and ensure that lenders do not become overly aggressive in their valuation methods.
As the market continues to expand—with some estimates projecting the industry to exceed ₹30 trillion by 2027-28—the focus for investors and industry observers has shifted from mere growth to asset quality. The key monitorable for the coming quarters will be how both banks and NBFCs manage their delinquency levels. Investors should watch for management commentary on loan recovery rates, the impact of any changes in gold prices on their collateral value, and whether the trend of borrowers using gold loans to service other debt continues to escalate.