Top Indian NBFCs are aggressively shifting from unsecured credit to gold-backed loans, with their combined portfolio nearly doubling to ₹1 lakh crore. While this provides a secure asset class, analysts warn of rising risks from over-leveraged borrowers and debt saturation in the sector.
Indian non-banking financial companies (NBFCs) are changing their lending strategy by moving away from unsecured credit toward gold-backed loans. As personal loan defaults rise, lenders are viewing gold as a safer asset to back their loans. As of the quarter ended September 2026, the combined gold loan book of four major lenders—Bajaj Finance, IIFL Finance, L&T Finance, and HDB Financial Services—has reached nearly ₹1 lakh crore, a massive jump from ₹48,831 crore a year ago.
This trend is most visible at IIFL Finance, which holds the largest portion of this new portfolio. Its gold loan book has grown to ₹65,729 crore, now accounting for over 53 percent of its total loan assets. Bajaj Finance is also expanding rapidly in this space, reporting a 105 percent year-on-year growth in its gold loan portfolio, which now stands at ₹24,195 crore.
To drive this growth, these companies are increasing their reach. L&T Finance, for instance, is aggressively adding physical branches to its network, aiming to reach 800 locations by the end of the year to capture more customers in smaller towns and cities.
Rising Risks and Borrower Quality
While gold loans are secured by collateral, the rapid growth has brought new concerns for investors. Analysts are particularly focused on the quality of borrowers entering this market. Data from the sector suggests that the number of people holding loans from multiple lenders at the same time is on the rise.
Recent data cited by Piramal Finance indicates that between 15 and 23 percent of gold loans disbursed in the past year went to customers who were already struggling to repay other existing loans. This creates a risk of a debt trap, where borrowers may struggle to manage payments despite pledging their gold. If a borrower fails to repay, the lender has the gold to sell, but the process of recovery can be complex and may be affected if gold prices fall sharply.
What Investors Should Monitor
For investors, the long-term success of this shift depends on two main factors. First, the stability of gold prices is essential, as these prices determine the value of the collateral backing the loans. Second, the industry must maintain strict discipline in checking the background of borrowers. Investors should watch future company updates to see how these lenders manage repayment rates and whether they tighten their lending standards to avoid the risks of over-indebted borrowers. The ability to grow the loan book while keeping bad loans low will be the true test for these financial companies.