Organised Gold Loan Market To Reach Rs 15 Tn by 2027: Icra

The organised gold loan market in India, consisting of both banks and non-banking financial companies (NBFCs), is projected to surpass Rs 10 trillion in the current fiscal year and reach an estimated Rs 15 trillion by March 2027, according to the latest report by ICRA. This growth will be driven by the increasing demand for gold-backed loans and a strong market presence of public sector banks (PSBs) and NBFCs.

The report highlights that NBFCs, which lead in the retail gold loan segment, are expected to expand their portfolio by 17-19 per cent in FY25. This growth is attributed to the rising demand for gold loans in both urban and rural markets. The moderation in competitive intensity has also resulted in some expansion in the loan yields of NBFCs, although they remain 200-300 basis points lower than peak levels observed 4-5 years ago.

Overall, the organised gold loan market has shown a compounded annual growth rate (CAGR) of 25 per cent from FY20 to FY24, with banks growing at a higher rate of 26 per cent compared to 18 per cent for NBFCs. The PSBs accounted for about 63 per cent of the overall gold loan market as of March 2024, up from 54 per cent in March 2019. Meanwhile, NBFCs have maintained a stable share in retail gold loans over the past three to four years.

The growth in NBFCs' gold loan portfolios has been closely linked to buoyant gold prices. Although branch additions and the amount of gold jewellery held as collateral increased modestly by 3-4 per cent, the loan book for larger players grew by 18 per cent from FY2020 to FY2024. This growth is expected to continue, driven by the rise in gold prices and expansion into untapped markets.

Notably, NBFCs faced yield pressures in FY2022 and FY2023, but this eased somewhat in FY2024. However, yields remain below the peak levels seen in FY2020 and FY2021. Credit costs have remained low, staying well below 0.5 per cent over the past five years, with access to collateral and a liquid market reducing lenders' credit risk.

Icra noted that the NBFCs are steadily enhancing their online lending platforms, which is expected to improve operating leverage and expand the customer base. The recent regulation restricting cash disbursements for loans exceeding Rs 20,000 has not significantly impacted business, as NBFCs have adapted to digital payment methods.

“Healthy growth outlook, low credit cost, and relatively improved pricing power support the credit risk profiles of gold loan companies. The focus now is on improving operational efficiencies within regulatory frameworks, providing scope for enhanced earnings,” stated A M Karthik, Co-group Head, Financial Sector Ratings, Icra.

The report underscored that NBFCs' retail gold loans are likely to maintain a steady growth rate, with projections suggesting a CAGR of 14-15 per cent for FY2026-FY2027. As more players diversify into this segment, the organised gold loan market will continue to thrive, driven by the rising demand for accessible and collateral-backed financing options.