Union Minister of Finance Nirmala Sitharaman told Parliament in a written reply that banks and NBFCs are witnessing a rise in NPAs related to gold loans. Gross NPAs in gold loans in scheduled commercial banks have increased by 21 per cent
There has been a 21 per cent rise in non-performing assets (NPAs) related to gold-related loans for scheduled commercial banks (SCBs), Union Minister of Finance Nirmala Sitharaman told Parliament in reply to a question on February 11, 2025. The gross non-performing assets (GNPAs) in gold loans increased by 18.14 per cent in banks and upper and middle-layer non-banking financial companies (NBFCs) between March 2024 and June 2024, she said.
Additionally, per capita household liability has also risen, she added.
“The gross non-performing assets (GNPAs) pertaining to gold loans in scheduled commercial banks (SCBs) and upper and middle-layer non-banking financial companies (NBFCs) have increased by 18.14 per cent from March 2024 to June 2024, and the GNPAs pertaining to gold loan in SCBs have increased by 21.03 per cent,” she answered in a written reply in Lok Sabha.
She further said that banks and NBFCs have re-evaluated their risk management methods regarding gold loans and are trying to safeguard themselves against price fluctuations and valuation errors.
Incidentally, till June 30, 2024, the gold loan GNPA ratio was recorded at 0.22 per cent for banks and 2.58 per cent for NBFCs operating in the upper and middle layers.
Steps Taken To Tackle Rise In NPA
To tackle this problem, the Reserve Bank of India (RBI) had on September 30, 2024, instructed all supervised lenders to perform a thorough assessment of their gold loan policies, identify gaps, and start corrective measures within a stipulated timeline.
Lenders were also asked to closely track third-party service providers involved in the gold loan business.
Additionally, public sector banks were recommended to perform a comprehensive review of all gold loans sanctioned between January 1, 2022, and January 31, 2024. The review was supposed to analyse the quality of the collateral, interest rates, and other charges applied to borrowers to ensure adherence to regulatory guidelines.
Meanwhile, given the volatility in gold prices and the risk of overvaluation, RBI has reinforced the 75 per cent loan-to-value (LTV) ratio. This means that banks and NBFCs cannot lend over 75 per cent of the gold’s value that has been pledged as collateral. These criteria need to be maintained throughout the loan tenure.
Further, “to support small borrowers, the aforesaid LTV ratio is not applicable to loans extended by SCBs for agriculture purpose, and in terms of RBI guidelines, lenders are permitted to make cash disbursement up to Rs 20,000 in case of gold loans,” she added.