Organised gold loans offered by banks, NBFCs may top Rs 10 trn by FY25

Cumulatively, organised gold loans offered by banks and non-banking finance companies (NBFCs) are set to top Rs 10 trillion in the current financial year (FY25) and will potentially touch Rs 15 trillion by March 2027, rating agency ICRA said on Wednesday.

The gold loan segment has expanded at a compound annual growth rate (CAGR) of 25 per cent between FY20 and FY24, Icra said, adding that while banks expanded their gold loan portfolio by 26 per cent, the NBFCs expanded this segment by 18 per cent. Bank gold loan growth was driven by agriculture loans backed by gold jewellery.

Meanwhile, NBFCs hold the pole position in retail gold loans. “The moderation in competitive intensity is leading to some expansion in the loan yields of the NBFCs; however, their yields are expected to be lower by 200-300 basis points (bps) than the peak levels seen 4-5 years back,” the rating agency highlighted.

Additionally, it has forecast that the gold loan portfolio of NBFCs is set to expand at 17-19 per cent in FY25 and grow at a CAGR of 14-15 per cent during FY26-FY27.

“With intensifying headwinds for unsecured loans, resulting in lower growth vis-à-vis the previous fiscal, and supported by buoyant gold prices, the NBFC gold loan book growth revived in FY24, and the trend is expected to continue into FY25,” said A M Karthik, co-group head, financial sector ratings, ICRA.

Among the NBFCs, the gold loan book is concentrated with the top four players accounting for 83 per cent in March 2024, compared to 90 per cent two years ago.