Organised gold loan market set to cross ₹10 lakh cr in FY25: ICRA
The organised gold loan market, comprising banks and non-banking financial companies (NBFCs), is set to cross the ₹10-lakh-crore mark in the current fiscal from ₹9.2 lakh crore in FY24 and touch ₹15 lakh crore by March 2027, according to an assessment by ICRA.
The rating agency observed that banks remain dominant players in this segment, driven by gold jewellery-backed agriculture loans.
At the same time, NBFCs are in pole position in retail gold loans and expected to grow at 17-19 per cent in FY2025 and register a compounded annual growth rate (CAGR) of 14-15 per cent during FY2026-27.
Public sector banks (PSBs) accounted for about 63 per cent of the overall gold loans in March 2024, up from 54 per cent in March 2019, while the share of NBFCs and private banks moderated by equal measure during this period. The NBFCs, however, continue to hold a stable share in retail gold loans over the last 3-4 years.
The agency opined that moderation in competitive intensity is leading to some expansion in the loan yields of NBFCs, but these may still lag by 200-300 basis points (bps) the peak of 21-22 per cent 4-5 years back.
Overall, the organised gold loan segment saw CAGR of 25 per cent during FY2020-24, with bank gold loans registering a higher CAGR of 26 per cent and NBFCs 18 per cent.
Banks vs non-banks
Bank retail gold loans grew by 32 per cent on a lower base. Consequently, the share of NBFCs reduced during this period as they focused more on retail gold loans for consumption or business purposes.
“In the recent past, NBFC gold loan growth trends were influenced by the trends in other loan products, namely microfinance, unsecured business, or personal loans, which also target 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,” AM Karthik, Co-Group Head, Financial Sector Ratings, ICRA said.
ICRA assessed that growth in the gold loan book of NBFCs is largely driven by gold prices, as branch additions and the tonnage of gold jewellery held as collateral grew modestly at 3-4 per cent vis-à-vis 18 per cent during FY2020-24 for the larger players.
The NBFC gold loan book is dominated by the top four players, who accounted for 83 per cent share in March 2024; their share, however, has declined from 90 per cent two years ago as some existing players have diversified to this segment and some newer players have emerged.
Yield pressures
ICRA said the yield pressures faced by NBFCs in FY2022 and FY2023 have abated to some extent in FY2024 but remain 200-300 bps lower than the peak in FY20-21. Credit costs remained well below 0.5 per cent in the last five years.
Access to collateral, which is liquid, reduces the lender’s credit risk. In case of loan overdue, lenders undertake auctions, fetching healthy realisations.
The agency observed that the entities are augmenting online lending, which could improve their operating leverage and augment their customer base.
The directions restricting cash disbursements (on loans above ₹20,000) have not impacted business significantly as the entities have adapted accordingly, it added.
“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 key and provides scope for the players to strengthen their earnings performance,” Karthik said.