Chennai: Surging gold prices and higher valuation for the collateral will see the organised gold loan market growing 40 per cent this fiscal to Rs 10 lakh crore.
Gold prices have gone up by 12.30 per cent since the start of the fiscal. The existing inventory in the gold loan market has appreciated as much due to the price rise. Further, elevated prices offer better valuation for the collateral and hence the demand for gold loan has been robust.
Talking about the last quarter, V.P. Nandakumar, MD & CEO, of Manappuram Finance said, “We were able to achieve significant growth in gold loan AUM in this quarter, registering nearly 15 per cent growth year-on-year and 10 per cent sequentially”.
The gold loan market is expected to exceed a size of Rs 10 lakh crore in the current fiscal, finds ICRA. As per the data of PwC India, the market was valued Rs 7.1 lakh crore in FY24, thus growing 40 per cent this fiscal. ICRA estimates the market to further reach Rs 15 lakh crore by March 2027.
The growth will be led by public sector banks (PSBs) and be driven by agriculture loans that are backed by gold ornaments. Banks have made a sharp scale-up in recent times in the gold loan space and more banks are upscaling their branches to offer gold loans. Customers also have been preferring gold-backed agriculture loans at low interest rates compared to those offered by NBFCs.
Gold loan AUM of NBFCs stood at Rs 1.7 lakh crore in June 2024. The AUM growth continues to be driven by gold prices with ornament tonnage growth remaining muted. Branch additions have also been subdued, though entities are steadily augmenting their online loan models.
Although new players are venturing into this space, the NBFC gold loan book remains concentrated among the top four players. The segment is operationally intensive, and the key processes are also regulated. The recent directions restricting cash disbursements have not impacted business significantly as the entities have been able to seamlessly adopt the digital mode.
