PUNE: Bajaj Finance has discontinued its short-tenure gold-loan schemes after repayment difficulties among some borrowers led to a sharp increase in loans showing early signs of credit stress. The move comes as the non-banking financial company (NBFC) rapidly expands its gold-loan business, with its portfolio more than doubling over the past year.
The company’s gold-loan book stood at ₹24,195 crore at the end of the September quarter of FY27, compared with ₹11,789 crore a year earlier. Gold loans accounted for approximately 4.1% of its balance sheet, highlighting the growing importance of the segment in its lending operations.
The lender added 321 gold-loan branches during the September quarter, taking its network to 2,022 branches. However, the expansion has coincided with a rise in overdue accounts linked to certain short-tenure products, prompting management to revise the way these loans are structured.
Why Bajaj Finance Discontinued the Scheme
The discontinued schemes required borrowers to return to a branch every three months to pay interest or renew their loans. According to the company’s management, this arrangement became difficult for some customers to maintain, resulting in missed payments and delayed renewals.
Sandeep Jain, chief operating officer and chief financial officer of Bajaj Finance, explained during the company’s second-quarter earnings call that the need to visit a branch frequently had become cumbersome for borrowers. Some customers consequently slipped into delinquency even when the issue was associated with their repayment or renewal schedule.
Bajaj Finance stopped offering the short-tenure schemes in August and is moving towards loans with a tenure of approximately 12 months. Under the revised structure, borrowers can choose to pay interest monthly or quarterly.
Customers can also continue to opt for bullet repayment, under which the principal amount is repaid at the end of the loan tenure. Management said borrowers taking longer-tenure loans may also repay them earlier, subject to the applicable loan terms.
The change is intended to make repayment more manageable and reduce the likelihood of customers falling behind because of the structure of the product.
Stage 2 Gold-Loan Assets Rise Sharply
The discontinuation follows a significant increase in gold-loan accounts classified as Stage 2 assets. These are loans where credit risk has increased substantially since the initial recognition, although they have not yet been classified as non-performing assets.
Bajaj Finance’s Stage 2 gold-loan assets increased by ₹1,047 crore during the September quarter, reaching approximately ₹1,100 crore. The company attributed the increase largely to the short-tenure schemes that have since been discontinued.
This development is important because Stage 2 classification can indicate emerging repayment stress before a loan becomes non-performing. Monitoring such accounts helps lenders identify borrowers who may require closer attention and assess whether changes in lending practices are needed.
Management described the increase as transitional and said the company did not expect the issue to affect credit costs or lead to additional gold auctions.
The company also said approximately ₹550 crore of the affected gold-loan assets had moved back to Stage 1, indicating an improvement in the credit-risk classification of those accounts.
Nevertheless, the trend will remain an important indicator for investors as Bajaj Finance continues to expand its gold-backed lending business.
Gold-Loan Network Expands to 2,022 Branches
Bajaj Finance is continuing to invest in its gold-loan distribution network despite discontinuing the short-tenure schemes. The company added 321 branches in the September quarter, taking the total network to 2,022.
It expects to increase the number of gold-loan branches to between 2,700 and 2,800 by the end of FY27. The expansion is aimed at increasing access to gold-backed credit and strengthening the company’s presence in the segment.
Gold loans allow customers to borrow against eligible gold jewellery without selling the asset. Since the loan is secured by collateral, the interest rate may be lower than that of an unsecured personal loan, depending on the lender and the borrower’s terms.
The product can be useful for households and small businesses seeking funds for short-term expenses, working capital or other financial needs. Demand can also be influenced by gold prices, household liquidity requirements and the availability of alternative credit.
However, lenders must carefully assess collateral value, repayment capacity and loan structures to ensure that customers can meet their obligations.
Borrowers Shift Towards Gold-Backed Credit
Gold loans have become an important financing option for some borrowers who might otherwise choose personal loans. The difference in borrowing costs can influence customers to pledge gold jewellery rather than take unsecured credit.
State Bank of India Chairman Challa Sreenivasulu Setty previously noted that some regular personal-loan customers were switching to gold loans because of an interest-rate difference of nearly three percentage points.
This trend reflects the growing role of secured lending in the retail credit market. For lenders, gold loans offer an opportunity to expand their customer base while holding collateral against the amount advanced.
However, rapid portfolio growth can also bring operational challenges. Branch access, loan renewal procedures, interest-payment schedules and clear communication of terms all influence whether borrowers remain current on their accounts.
Bajaj Finance’s decision to discontinue the short-tenure products illustrates how loan design can affect repayment behaviour, even when a product is backed by valuable collateral.
Bajaj Finance Reports Strong Quarterly Growth
The gold-loan development comes alongside strong overall business growth for Bajaj Finance. The company reported consolidated net profit of ₹6,367 crore for the September quarter of FY27, an increase of approximately 29% from ₹4,948 crore in the corresponding quarter a year earlier.
Net interest income rose 24% year-on-year to ₹13,335 crore, while assets under management increased 26% to approximately ₹5.85 lakh crore.
The growth was supported by expansion across several lending businesses, including consumer finance, small-business lending and gold loans. The company has also been investing in its branch network and customer acquisition.
Despite the strong earnings performance, the rise in Stage 2 gold-loan assets highlights the importance of monitoring credit quality as lending volumes grow. Investors will be watching whether the revised loan terms help reduce repayment delays and prevent the issue from spreading to a larger share of the portfolio.
What the Change Means for Gold-Loan Customers
The discontinued scheme relates to the lender’s short-tenure gold-loan products. The announcement does not, by itself, establish that all existing borrowers will automatically face changes to their loan agreements.
Customers with an existing Bajaj Finance gold loan should check their loan documents and contact the lender to confirm the applicable repayment schedule, interest-payment requirements and renewal conditions.
Borrowers should also ensure that they understand the consequences of missing payments, the terms for early repayment and the conditions under which pledged gold may be auctioned. Specific rights and obligations depend on the individual loan agreement and applicable regulations.
For prospective borrowers, the shift towards longer-tenure products with monthly or quarterly interest-payment options may offer greater flexibility. However, customers should compare interest rates, fees, repayment requirements and the total cost of borrowing before selecting a loan.
Outlook for Bajaj Finance’s Gold-Loan Business
Bajaj Finance is continuing to expand its gold-loan operations, but the discontinuation of short-tenure schemes shows that portfolio growth must be supported by workable repayment arrangements and disciplined credit monitoring.
The company’s ability to grow its branch network while controlling delinquencies will be important in determining the long-term performance of the business. A sustained reduction in Stage 2 assets would help demonstrate whether the revised terms are addressing the problem.
For now, the gold-loan portfolio remains a growing part of Bajaj Finance’s lending business. The next few quarters will provide a clearer indication of whether the shift to longer-tenure loans can support expansion without compromising repayment performance and asset quality.