Gold's 22% Fall Is Now Showing Up In Margin Calls On Bullet Repayment Loans

Gold has dropped 22% from its January peak and the pain is now showing up in a corner of the lending market.

Bullet repayment gold loans, where borrowers pay nothing during the loan period and settle the entire amount in a single lump sum at the end, are generating margin calls as the value of pledged gold falls below levels lenders are comfortable with. The 24-carat gold price in India sits at around ₹1.40 lakh per 10 grams today, against a peak of ₹1.82 lakh on 29 January. That gap is wide enough to push loan-to-value ratios on older bullet loans into uncomfortable territory.

On 29 June, at 12:12 PM, Muthoot Finance dropped 1.58% to ₹2,977.90, while Manappuram Finance Ltd was also down by 1.27% to ₹314.45, as the market priced in the pressure building on gold loan non-banking financial companies.

Why Bullet Loans Take The Hit

A bullet loan carries the same outstanding balance on day one as it does on the last day of the tenure. Nothing comes off the principal along the way. When collateral value falls, the loan-to-value ratio rises automatically with no natural offset from repayments.

Monthly installment loans work differently. Each payment reduces the outstanding principal, building a cushion that absorbs price moves over time. That cushion is what keeps equated monthly installment loans largely insulated from the current correction.

The Regulatory Response

The Reserve Bank of India introduced a new framework effective from 1 April, introducing loan-to-value ceilings across ticket sizes. Loans under ₹2.5 lakh are capped at 85%, the ₹2.5 to ₹5 lakh bracket at 80% and loans above ₹5 lakh at 75%.

Non-bank lenders have been pivoting toward equated monthly installment products since the new rules landed, reducing their exposure to the bullet repayment structure going forward.

Also Read - IIFL Finance Plans ₹10,000 Crore Capital Raise; Board Approves Higher Borrowing Limits

Lenders Say Risk Is Under Control

Lenders say the situation is manageable for now. Short loan tenures mean positions can be addressed at renewal rather than through forced action. A gradual decline in gold prices gives lenders sufficient time to work through the book. A sudden single-day fall of 10% or more would be a different situation entirely, but no such move has materialised so far.