What is the Status of Gold Loan NPAs for NBFCs and Banks?
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Synopsis
The rising NPAs in gold loans for banks and NBFCs raises concerns. Scheduled commercial banks see a slight uptick in NPAs from 0.2% to 0.22%, while upper and middle-tier NBFCs experience a significant rise to 2.14%. What does this mean for borrowers and the lending landscape?
Key Takeaways
- Gold loan NPAs for banks increased slightly to 0.22%.
- NBFCs saw a rise to 2.14%.
- Regular assessments of collateral are vital for risk mitigation.
- The Loan-to-Value ratio is set at 75%.
- Complaints are addressed under the RBI Ombudsman Scheme.
New Delhi, Aug 18 (NationPress) The percentage of gross non-performing assets (NPAs) related to gold loans in scheduled commercial banks has seen a slight rise from 0.2% in March 2023 to 0.22% in March 2025. In contrast, the rate for upper- and middle-tier non-banking financial companies (NBFCs) surged from 1.21% to 2.14% during the same timeframe, as reported to Parliament on Monday.
In a written response to a query from Rahul Gandhi, the Leader of the Opposition in the Lok Sabha, Pankaj Chaudhary, Minister of State for Finance, mentioned that the RBI Ombudsman’s office has received 188 complaints regarding gold loans in the financial year 2024–25. These grievances are processed in line with the RBI Integrated Ombudsman Scheme of 2021.
To address the risks associated with gold loans, both banks and NBFCs implement various strategies as per existing guidelines. These strategies involve consistent evaluation and re-evaluation of the gold used as collateral to verify its purity through methods such as acid tests, touchstone testing, and X-ray fluorescence (XRF) analysis. Additionally, they ensure the involvement of qualified appraisers to assess the value of the pledged gold under CCTV surveillance alongside the branch officials and the borrower.
Other protective measures consist of routine audits to confirm compliance with regulatory standards and internal policies, and the auctioning of pledged gold in cases of default, provided customers are given enough notice to settle their debts.
The government and RBI have also instituted further measures to protect the gold loan sector and minimize risks stemming from fluctuations in gold prices, valuation inaccuracies, and loan defaults. Public sector banks have been instructed to perform a thorough review of their gold loan portfolios issued between January 1, 2022, and January 31, 2024, focusing on the assessment and testing of collateral, as well as analyzing interest and other charges levied on borrowers to ensure compliance with regulations.
Moreover, the RBI has urged all supervised entities to conduct a comprehensive evaluation of their gold loan policies, procedures, and practices to pinpoint weaknesses and initiate corrective actions promptly, ensuring rigorous oversight of the gold loan portfolio and proper controls over outsourced functions and third-party service providers.
To protect lenders from risks such as gold price volatility and valuation mistakes, regulated entities, including banks and NBFCs, are restricted from offering loans that exceed 75% of the value of gold jewelry and ornaments. This Loan-to-Value (LTV) ratio of 75% must be maintained for the entire loan duration, as stated by the minister.
Furthermore, for loans with both interest and principal due at maturity (bullet repayment loans), banks cannot provide loans with a tenure exceeding 12 months from the approval date to reduce default risks, the minister emphasized.
Point of View
I believe it is crucial for the public to understand the dynamics of gold loans amid rising NPAs. The measures being taken by financial institutions reflect a commitment to uphold standards and protect both lenders and borrowers in this volatile market.
NationPress
07/10/2025
Frequently Asked Questions
What are the current NPA rates for gold loans?
As of March 2025, NPAs for scheduled commercial banks stand at 0.22%, while for upper- and middle-tier NBFCs, they are at 2.14%.
What measures are being taken to mitigate risks associated with gold loans?
Banks and NBFCs are conducting regular assessments of collateral, employing trained appraisers, and conducting periodic audits to ensure compliance with regulatory guidelines.
What is the Loan-to-Value ratio for gold loans?
The Loan-to-Value (LTV) ratio for gold loans is capped at 75% of the gold's value, a regulation aimed at minimizing lender risks.
How are complaints regarding gold loans handled?
Complaints related to gold loans are processed by the RBI Ombudsman’s office under the provisions of the RBI Integrated Ombudsman Scheme, 2021.
What is the tenure limit for bullet repayment loans?
Banks are not allowed to extend bullet repayment loans with tenures exceeding 12 months from the date of sanction.
