Gold Loans Set to Surpass Rs 10 Lakh Crore by FY25: Icra Ratings

According to a report by Icra Ratings, gold loans by banks and NBFCs are predicted to exceed Rs 10 lakh crore by the end of FY25 and Rs 15 lakh crore by FY27. Despite initial concerns, the RBI's cash disbursement restrictions have not significantly impacted the market. Banks and NBFCs continue to grow in the gold loan sector.

Gold loans by banks and non-bank lenders are forecasted to surpass Rs 10 lakh crore by the end of FY25, as per a report published on Wednesday by Icra Ratings.

The report also projects the quantum of gold loans to reach Rs 15 lakh crore by the end of FY27.

Initial apprehensions regarding the RBI's restrictions on cash disbursements for loans above Rs 20,000 have proven to be unfounded, as the market has adapted without substantial disruption, according to the report.

Banks, driven by agriculture loans backed by gold jewelry, maintain dominance in the gold loan market. Meanwhile, NBFCs hold a strong position in retail gold loans, expected to grow by 17-19%.

The report notes a moderation in yields for lenders, predicting up to a 3% decline compared to four years ago due to increased competition.

Over the past four years ending FY24, gold loans saw a compounded annual growth rate of 25%, with banks growing 26% and non-banks at 18%.

Public sector banks (PSBs) increased their market share to 63% in March 2024, from 54% in March 2019. Conversely, NBFC and private banks witnessed a decline in their shares.

AM Karthik, co-group head for financial sector ratings at Icra, highlighted renewed growth in the NBFC gold loan book, driven primarily by buoyant gold prices, which is expected to continue into FY25.

The report also pointed out that the growth in NBFC gold loan books is largely influenced by gold prices and branch expansions, whereas the quantity of gold jewelry held as collateral grew moderately at 3-4%.

Additionally, lending concentration remains high among NBFCs, with the top four players holding an 83% market share.

(With inputs from agencies.)