India’s Gold Loan Market Expected To Touch Rs 4.61 Lakh Crore by 2022

New Delhi, January 20: India’s gold loan market is expected to reach Rs 461,700 crore by 2022 at a five-year compounded annual growth rate (FY18 to FY22) of 13.4 per cent, states KPMG its recent report titled Return Of Gold Financiers In India’s Organised Lending Market.

FY2019 saw gold loan companies aggressively expanding their network across the northern and eastern Indian states, where market penetration was low. Going forward, these companies are expected to focus on optimising their asset utilisation and leveraging their existing branch infrastructure to maximise the branch-level asset under management and customer outreach, the report stated.

Owing to the emotional value associated with gold jewellery, Indians rarely sell jewellery to meet financial needs. As an alternative, people pledge their gold ornaments as collateral and secure a short-term loan. At a broader level, gold-loan lenders are classified into two main categories: formal (organised) and informal (unorganised).

Since gold loans are granted against the gold pledged by borrowers, the quantity of gold available with customers is a key parameter while determining the market size of gold loans. Total gold loans outstanding in the organised sector in 2019 are estimated at 5.5 per cent of the total household gold holdings in India, indicating low market penetration. However, with the ease in monetising gold and increased economic activity in rural India, gold loan demand is expected to reach new heights.

The organised gold loan market comprising banks (public, private, small finance and co-operative), non-banking finance company (NBFCs) and nidhi companies contribute to nearly 35 per cent of the Indian gold loan market. NBFCs specialising in gold loan have consistently increased their market share through aggressive investments in branding, promotions and geographic expansion.

For centuries, gold loans have been provided to people from all walks of life by money lenders and pawn brokers. Currently, India’s unorganised gold loan market is estimated to be accounting for nearly 65 per cent of the total gold loan market. Unorganised players, with their knowledge of the local market, provide quick loans with little documentation but at a very high interest rate. Being completely unregulated, customers are at the risk of exploitation by these players. 

Various new-age fintech companies and traditional players have started to offer innovative products such as online gold loans catering to the young urbane population. Primary beneficiaries of such products are digitally and financially literate customers who belong to the age group of 25 to 40.

One of the largest consumers of the yellow metal in the world, India accounted for an estimated 23 per cent of the global gold demand between 2009 and 2018. 

Gold holdings in India are primarily concentrated in rural pockets with more than two-thirds of India’s total demand emerging from rural communities. It’s least surprising that India is one of the largest consumers of the yellow metal in the world. 

Gold prices in India have been showing an overall upward trend over the last five decades. It was around 2003 that gold prices saw an inflection point and surged to never-before-levels. Prices rose at a rapid rate until 2013, following, which prices in India reduced drastically.