India's Shriram Finance reported a rise in bad loans in its gold loan portfolio in the second quarter on Friday, joining peers in signalling pressure in the fast-growing lending segment, even as it beat analysts' estimate for overall profit.
Gold-backed lending has grown rapidly in India as banks and non bank lenders bet on the security offered by borrowers' gold. The pace of growth, however, has exposed pockets of stress, recently flagged by top non-bank lenders.
Shriram Finance, which has a gold loan book of nearly 90 billion rupees, said gross stage 3 loans in the segment rose to 3.12% of total gold loans, from 2.57% in the previous quarter and 2.28% a year earlier. Stage 3 loans are those that are overdue for more than 90 days.
Shares of the non-bank lender settled 4% lower at 865 rupees.
Earlier this week, Bajaj Finance flagged a rise in loans overdue by more than 30 days, partly driven by short-term gold loans that it has since stopped offering. Piramal Finance has also identified the rapid expansion of gold loans as an emerging area of risk.
Shriram Finance reported standalone profit of 36.77 billion rupees ($387.30 million) for the quarter ended September 30, compared with 23.07 billion rupees a year earlier.
Analysts had estimated a profit of 35.46 billion rupees, according to data compiled by LSEG.
Loan growth for India's non-banking finance sector was strong in the second quarter, supported by steady credit demand across retail and business segments.
Shriram Finance's assets under management rose 17% year-on-year to 3.29 trillion rupees.
