Indian Gold Loan Market Set to Skyrocket

According to a KPMG report, India’s gold loan market is being expected to grow to Rs. 4617 billion by 2022. This is at a 5-year compounded annual growth rate of 13.4%.

In the 2018-2019 fiscal year, companies dealing in gold loans have aggressively expanded their branch networks around the country, especially over northern and eastern states of the country. 

The KPMG report said, “Moving forward, these companies are expected to focus on optimizing their asset utilization and leveraging their existing branch infrastructure to maximize the brand-level AUM and customer outreach.” 

The name of the KPMG report is “Return of gold financiers in India’s organized lending market.”

What Brings this Growth?

New-age fintech players NBFCs have opened up an untapped market among digitally enabled customers, the number of whom is daily increasing. All this has been possible due to the emergence of digital and online models of gold loan service. All this means that it is now easier than ever before to get a gold loan. For instance, a customer only has to provide minimal documentation online, and has to visit the bank just once to deposit the gold ornaments. Once this is done, the funds are credited to the customer’s account. Companies are even offering doorstep service to customers, something that was till not heard only in conjunction with more rudimentary loan types.

It is expected that industry players like banks, NBFCs and FinTech firms will be investing more to develop “digital on-boarding capacities.” Right now, such capabilities are essential for capturing this segment, as well as the attention of tech-savvy customers.

Right now, the organized gold loan market comprises many banks, Nidhi companies, Fintech companies and Non-Banking Financial Companies. All of them contribute near to 35% of the total Indian gold loan market.

According to the KPMG report, these companies are competing not just against each other, but against financial service providers as well. This means there is considerable competition in the market due to the presence of many industry players. The organized gold market is still a new industry sector. All of this spells good news to gold loan customers.

The size of the unorganized gold loan market is three times that of the organized one, but it also shows high growth potential. Currently, it is actively penetrated by big financial service players offering unsecured loans.

In the past few years, major gold loan players have achieved geographical saturation. They are not exploring niches like SME loans and microfinance to keep their companies growing.

According to the report, customers who previously pledged their gold to meet emergency situations, holidays and durable purchases now get a risk-free way to get funds without the need to give any collateral. 

The report says “Lenders are partnering with Fintech companies to leverage the advancement in technology for developing enhanced underwriting capabilities that are agnostic to the availability of customer credit history.”

Lately, the use of credit card loans, personal loans and other consumer durable loans are gaining in popularity due to the arrival of robust underwriting systems and technological platforms.

Are there any Challenges?

The current gold market is not without its challenges. These challenges include gold price volatility, and the stress in the NBFCs. In 2019, the price of precious metals reached an all-time high. After this, gold loan companies shall be “more conservative” in their efforts to provide loans. They shall continue to give low LTV (Loan to Value) ratio, and Low Tenure Loans to offset their risks due to gold price volatility.

While gold price globally is expected to fall in the long term, the Indian gold market is expected to grow with high growth potential. This is due to the fact that banks are getting more selective in credit disbursement. The spread to new areas of the country will also aid growth.