NBFCs moving from bullet payments to monthly installments for gold loans may see a rise in non-performing assets. Despite this shift, the total gold loan market is expected to reach Rs 30 lakh crore by March 2028, with NBFCs capturing 23% market share.
Non-banking financial companies (NBFCs) in the gold loan sector are undergoing a structural change in how they collect repayments. Many lenders are moving away from traditional bullet payment structures—where the principal and interest are paid at the end of the loan tenure—toward regular monthly installment plans. According to rating agency ICRA, this transition is likely to lead to an increase in non-performing assets (NPAs) as borrowers adjust to the new payment schedules.
While an increase in bad loans is anticipated, the financial impact may remain manageable for these lenders. Gold loans are secured by physical gold, which allows NBFCs to recover funds through collateral auctions if a borrower defaults. Consequently, even if the NPA ratio ticks upward, the actual credit losses are expected to stay low compared to unsecured lending segments.
Market Outlook and Competitive Pressure
The organized gold loan market, which includes both banks and NBFCs, is forecast to grow at a strong pace, projected to cross Rs 30 lakh crore by March 2028. This represents significant growth from the estimated Rs 18 lakh crore level in March 2026. NBFCs are expected to increase their slice of this market to 23% by fiscal year 2027-28.
However, this growth comes with challenges. As more players enter the gold loan space and banks ramp up their own offerings, competitive pressure is intensifying. This environment may compress business yields and put pressure on profit margins. Some entities might choose to offer higher loan-to-value (LTV) ratios to attract customers, which could increase their vulnerability if gold prices fluctuate significantly.
Historical Context and Monitoring
For historical comparison, the NPA ratio for NBFC gold loans stood at 3% as of March 2026, while the gold loan NPA for the banking sector was significantly lower at approximately 0.5%. The move toward regular installment-based loans is partly a response to the recent stress observed in other unsecured credit segments, as lenders pivot toward more secured forms of lending.
For investors and market observers, the key monitorables moving forward will include the pace of this transition to monthly installments and how different NBFCs manage their collection efficiency during this shift. Additionally, the impact of rising competition on net interest margins will be an important metric to watch in upcoming quarterly disclosures. Investors may also track whether the shift to monthly payments effectively lowers long-term credit risks, despite the potential for short-term overdues.