Gold Loans Expected to Surpass Rs 10 Lakh Crore by FY25-End, According to Icra Ratings

Gold loans from banks and non-bank lenders are projected to surpass Rs 10 lakh crore by the close of FY25, according to a report released on Wednesday. The report by Icra Ratings anticipates that these loans will reach Rs 15 lakh crore by the end of FY27. Despite earlier concerns, the RBI's restrictions on cash disbursements for loans over Rs 20,000 have not significantly affected business, as entities have adapted well.

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Banks continue to dominate the gold loan sector, primarily through their gold jewellery-backed agriculture loans. Meanwhile, NBFCs lead in retail gold loans and are expected to see their portfolios grow by 17-19 per cent. The competitive market has led to some moderation in yields for lenders, with an estimated decline of up to 3 percentage points compared to four years ago.

Gold Loan Market Dynamics

Over the four years ending FY24, gold loans experienced a compounded annual growth rate of 25 per cent. This includes a 26 per cent growth for banks and an 18 per cent increase for non-banks. Public sector banks (PSBs) held about 63 per cent of the gold loan market in March 2024, rising from 54 per cent in March 2019. During this period, NBFCs and private banks saw their shares decrease equally.

The growth in NBFCs' gold loan books is largely attributed to rising gold prices and branch expansions. The tonnage of gold jewellery used as collateral grew modestly at 3-4 per cent against an 18 per cent growth in the loan book from FY2020 to FY2024 for major players. The lending landscape within NBFCs is concentrated, with the top four players holding an 83 per cent market share.

Future Growth Prospects

With challenges facing unsecured loans leading to slower growth compared to the previous fiscal year, NBFCs' gold loan book growth rebounded in FY24. This trend is expected to continue into FY25, supported by strong gold prices. "The growth in the NBFCs' gold loan book is largely driven by the gold prices as well as branch additions," said AM Karthik, co-group head for financial sector ratings at Icra.

The competitive intensity has led to some moderation in yields for lenders. The report estimates a decline of up to 3 percentage points compared to the peak achieved four years ago. Despite this, banks remain a dominant force in the market due to their agriculture-focused loans backed by gold jewellery.

Overall, the outlook for gold loans remains positive with significant growth expected over the coming years. As entities continue adapting to regulatory changes and leveraging buoyant gold prices, both banks and NBFCs are poised for expansion in this sector.