Gold loans have seen tremendous growth in the past few years. A recent report published by ICRA has revealed that the organized gold loans provided by banks and non-banking financial companies (NBFCs) are projected to exceed Rs 10 trillion in the current financial year. The report anticipates that this figure will further grow to approximately Rs 15 trillion by March 2027.
The report emphasizes the dominant position of banks in the market, primarily due to gold jewellery-backed agriculture loans. Simultaneously, NBFCs are leading in retail gold loans and are poised for an expansion of 17-19% in the financial year 2025. Despite a slight relaxation in competitive pressure, NBFCs are experiencing some growth in their loan yields. However, it is anticipated that their yields will still be lower by 200-300 basis points compared to the peak levels observed 4-5 years ago.
Data released by Reserve Bank of India (RBI) stated loans against gold jewellery have shown a significant increase of 29% until July in the current fiscal year. This marks a substantial rise compared to the 6.7% growth recorded during the same period in the previous fiscal year. Year-on-year, the loan segment pertaining to gold jewellery has surged by 39% in the 12 months leading up to July, as opposed to the 16.5% growth observed in the corresponding period a year earlier.
The report stated that overall organised GL 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 GL 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.
“Over the recent past, NBFC GL 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 GL book growth revived in FY2024 and the trend is expected to continue into FY2025,”A M Karthik, Co-Group Head, Financial Sector Ratings, ICRA Limited said, speaking on this.
Growth in the Gold Loan book of Non-Banking Financial Companies (NBFCs) has been primarily driven by the fluctuations in gold prices. The expansion of branches and the tonnage of gold jewelry held as collateral have shown a modest growth rate of 3-4%, compared to the substantial 18% growth in the loan book for major players during the period spanning FY2020 to FY2024.
As of March 2024, the NBFC GL book exhibits a high level of concentration, with the top four players commanding an 83% market share, although this figure has decreased from 90% two years prior. This shift is attributed to existing players diversifying into this segment and the emergence of new players.
While NBFCs faced yield pressures in FY2022 and FY2023, these challenges have somewhat alleviated by FY2024; however, yields still remain 200-300 basis points lower compared to the peak levels observed in FY2020/FY2021. Notably, credit costs have been maintained at low levels, consistently staying below 0.5% over the past five years. The availability of collateral and its liquidity nature serve to mitigate the credit risk for lenders. In the event of loan delinquencies, lenders conduct timely auctions, resulting in favorable realizations and aiding in maintaining healthy asset quality.
“Healthy growth outlook, low credit cost and a relatively improved pricing power for gold loan companies support their credit risk profiles. This asset class, however, is highly regulated around various operational aspects, including branch opening, collateral evaluation and storage, auction process etc. Thus, improving operating efficiencies in view of the above, would be the key and provides scope for the players to further strengthen their earnings performance,” Karthik added.
“The previous ICRA report predicted that gold loans from banks and NBFCs could surpass ₹10 lakh crore this fiscal year, highlighting the growing reliance on gold as a financial asset. The increasing market for gold loans reflects the growing acceptance of this type of borrowing, attributed to favourable market conditions, rising demand for financial products and the instrumental role that gold loan platforms like SahiBandhu play in bringing the unorganised lending customer into the organised sector. SahiBandhu Gold Loan Aggregator Platform is dedicated to offering convenient and accessible gold loan services through India’s leading banks, by expanding our presence across 11,000+ pincodes enabling them to avail gold loans through formal banking,” said Mehak Srivastava, Head of Marketing, SahiBandhu Gold Loan Aggregator Platform.