Short-tenure loans, monthly EMIs drive up gold loan NPAs: Muthoot Finance MD

Stage 3 assets rose to 3.87% of loan assets from 2.25% in September 2025. Stage 2 assets, comprising loans overdue by 31-89 days, surged to ₹23,467 crore from ₹534 crore in the same quarter last year. “After the new RBI regulations kicked-in, shorter tenure loans and interest servicing schemes started. Since these loans require monthly interest payments, failure to pay can fall into Stage 2-and-3 buckets,” Alexander George Muthoot, MD, Muthoot Finance, said during the second-quarter earnings call.

5 lakh, 80% for loans up to ₹5 lakh and 75% for loans above ₹5 lakh. The revised norms also require lenders to classify gold loans based on their end use as income-generating (productive) or consumption (non-productive) loans, while permitting monthly EMI-based repayment schemes in addition to bullet repayment. “Customers are new to a regular interest servicing scheme as it never existed in the gold loan industry earlier,” Muthoot said.

He added that the company was leveraging its network of 5,000 branches and 32,000 employees to sensitise customers about regular payments. “This is one of the transformation phases. We need to educate the customers as well as manage the higher level of stage 2 & 3.” Earlier other NBFCs like Shriram Finance and Bajaj Finance also flagged higher slippages in their gold loan portfolios following the shift towards shorter-tenure and EMI-based products.

Muthoot Finance, however, believes that the increase in overdue loans during the transition to the new repayment structure may not translate entirely into defaults. The management said nearly ₹3,000 crore of its Stage 3 assets represented second or third loan accounts of borrowers whose other accounts remained in Stage 1 or Stage 2. Since the company follows borrower-wise classification, all such accounts are clubbed under Stage 3.

The lender also pointed to the relatively low LTV ratios of 53% for Stage 3 assets and 72% for Stage 2 assets, which it said provided an adequate cushion against gold price corrections and potential defaults. Muthoot said borrowers are typically given additional time to repay even after a loan turns non-performing, depending on their circumstances and applicable policies, provided the value of the underlying collateral remains adequate.

“Auctioning the pledged gold remains the last resort,” he said. “Historically around 98% of our customers repay the loans, while only a very small portion face repayment difficulties beyond the standard tenure,” he added.