Gold loans to reach Rs 15 trillion by 2027: What’s driving this growth?
Source: Business Standard
India’s organized gold loan market is poised to reach a new milestone, with rating agency Icra forecasting it to exceed Rs 10 trillion in the current financial year, and Rs 15 trillion by March 2027.
Key Trends:
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Bank Dominance: Public sector banks continue to dominate the gold loan market, driven by their agriculture loans secured by gold jewelry. -
NBFC Growth: Non-banking financial companies (NBFCs) are expected to expand their gold loan portfolios by 17-19% in FY2025. -
Yield Moderation: While NBFC gold loan yields have shown some expansion, they are anticipated to remain lower than peak levels seen 4-5 years ago. -
Market Share: Public sector banks have increased their market share in gold loans, while NBFCs have maintained a stable share in the retail segment.
Growth Drivers:
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Rising Gold Prices: Increasing gold prices have fueled demand for gold loans as individuals seek to monetize their gold assets. -
Financial Inclusion: The expansion of financial services and greater access to credit have contributed to the growth of the gold loan market. -
Consumer Demand: Rising consumer demand for gold jewelry and other gold-related products has supported the demand for gold loans.
Overall organised gold loan expanded at a compounded annual growth rate (CAGR) of 25% over the period FY2020-FY2024, driven by banks, which expanded these loans at a higher CAGR of 26%, while the NBFCs expanded theirs at 18% during the same period. Bank gold loan growth was driven by agriculture loans backed by gold jewellery, which grew at a CAGR of 26% during FY2020-FY2024, while their retail GLs grew by 32% on a lower base. Consequently, the share of the NBFCs reduced during this period, which were largely focussed on retail GLs for consumption or business purposes.
Public sector banks (PSBs) accounted for about 63% of the overall GL in March 2024, up from 54% in March 2019, while the NBFC and private banks’ shares moderated by equal measure during this period. The NBFCs, however, continue to hold a stable share in the retail gold loans over the last 3-4 years. ICRA expects NBFC GL to expand at 17-19% in FY2025 and projects it to grow at a CAGR of 14-15% during FY2026-FY2027.
The rating agency expects the organized gold loan market to continue its growth trajectory, driven by both banks and NBFCs. While banks are likely to maintain their dominance, NBFCs are expected to play a significant role, particularly in the retail gold loan segment.
“Over the recent past, NBFC gold loan growth trends were influenced by the trends demonstrated by other loan products, namely microfinance, unsecured business or personal loans, which are also targeted at similar borrowers. With intensifying headwinds for unsecured loans, resulting in lower growth vis-a-vis the previous fiscal, and supported by buoyant gold prices, the NBFC gold loan book growth revived in FY2024 and the trend is expected to continue into FY2025,” said A M Karthik, Co-Group Head, Financial Sector Ratings, ICRA Limited.
Growth in the GL book of NBFCs is largely driven by the gold prices as the branch additions and the tonnage of gold jewellery held as collateral grew at a modest pace of 3-4% vis-à-vis the 18% growth in the loan book during FY2020-FY2024 for the larger players.
The NBFC gold loan book is quite concentrated, with the top four players accounting for 83% share in March 2024; this, however, declined from 90% two years ago as some of the existing players have diversified to this segment and some newer players have emerged.
“Entities are steadily augmenting their online lending and a sustained scale-up should help improve their operating leverage and augment their customer base. The directions restricting cash disbursements (on loans more than Rs.20,000/-) have not impacted business significantly as entities have been able to adapt to the new requirement,” said Icra in a note.
First Published: Sep 25 2024 | 12:30 PM IST
