India’s gold loan market set for massive growth | Fusion - WeRIndia

The organized gold loan market in India is on the brink of tremendous growth, driven by rising gold prices, expanding financial inclusion, and increasing demand for gold-backed credit.

According to ICRA, the market is expected to surpass ₹10 trillion by the end of this financial year and may hit ₹15 trillion by March 2027.

This impressive expansion underscores the growing importance of gold loans in India’s credit landscape.

Public sector banks (PSBs) continue to dominate the gold loan sector, largely driven by agriculture loans backed by gold jewellery.

At the same time, non-banking financial companies (NBFCs) are gaining momentum, with their gold loan portfolios predicted to grow by 17-19% in FY2025.

While NBFCs have maintained a stable share in the retail segment, their yields are expected to stay below the peak levels witnessed four to five years ago.

Factors Propelling Growth

The organized gold loan market has been bolstered by several key factors:

• Soaring Gold Prices: As gold prices continue to rise, individuals increasingly seek to monetize their gold assets by taking out loans.
• Increased Financial Access: The broader reach of financial services and greater access to credit have significantly contributed to the rise in gold loans.
• High Consumer Demand: The growing demand for gold jewellery and related products is further fueling the expansion of gold loans.

Between FY2020 and FY2024, the gold loan market grew at a compounded annual growth rate (CAGR) of 25%.

Banks drove this surge, with a 26% CAGR during the same period, particularly in agriculture loans.

Retail gold loans from banks also expanded by 32%, though from a lower base, while NBFCs grew at 18%.

Shifts in Market Share

As of March 2024, PSBs accounted for 63% of the organized gold loan market, up from 54% in March 2019.

Conversely, the share of NBFCs and private banks has slightly declined during this period.

However, NBFCs have managed to retain their share of retail gold loans over the past few years.

ICRA predicts that NBFC gold loans will continue to grow, with an expected 17-19% rise in FY2025 and a 14-15% CAGR through FY2027.

Looking Ahead

The growth of the gold loan market will likely remain strong, supported by both banks and NBFCs.

Rising gold prices and expanding access to credit will continue driving demand, while NBFCs focus on retail gold loans to capture a significant market share.

The next phase of growth will depend on digital initiatives by NBFCs and banks, enhancing online lending and adapting to regulations like cash disbursement limits.

Image from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on March 13, 2013

Image Reference: https://pxhere.com/en/photo/1114374