Gold loans in India are on track for significant growth. According to ICRA, a rating agency, the organised gold loan market will surpass ₹10 lakh crore this financial year and reach ₹15 lakh crore by March 2027.

Retail gold loans from non-banking financial companies (NBFCs) are projected to grow by 17-19% in FY2025.

While yield pressures have lessened, they remain lower than the highs seen in previous years.

Market trends

From FY2020 to FY2024, the organised gold loan sector grew at a compounded annual growth rate (CAGR) of 25%.

Banks led this growth with a 26% CAGR, while NBFCs grew by 18%.

Agriculture loans backed by gold jewellery contributed significantly, with a growth rate of 26%.

Public sector banks (PSBs) now hold about 63% of the gold loan market, up from 54% in March 2019, while the shares of NBFCs and private banks have decreased.

A M Karthik from ICRA noted that NBFC gold loans have benefited from trends in other loan products.

With challenges facing unsecured loans, gold loans have seen a revival, thanks to rising gold prices.

“Gold loan growth revived in FY2024 and is expected to continue into FY2025,” Karthik stated.

Market concentration and risks

The NBFC gold loan market is concentrated, with the top four players holding 83% of the market as of March 2024.

Despite yield pressures in the past couple of years, they have eased, although yields are still 200-300 basis points lower than peak levels.

Credit costs have remained low, under 0.5%, thanks to the liquid nature of gold collateral.

Looking ahead

Lenders are moving towards online platforms to attract more customers.

Regulatory limits on cash disbursements for loans over ₹20,000 have not significantly impacted business.

Karthik said, “Healthy growth, low credit costs, and better pricing power support gold loan companies.”

However, regulatory measures mean improving operational efficiency will be key to enhancing profitability.