Strong demand, low credit costs to keep gold-loan NBFC profits healthy

Crisil Ratings expects gold-loan NBFCs to maintain strong profitability as rising demand, better operating leverage and benign credit costs support returns over the next two fiscals

Profitability of gold loan-focused non-banking financial companies (NBFCs) is set to remain healthy over the medium term, with return on managed assets (RoMA) projected at 4.25–4.5 per cent through this and the next fiscal, according to Crisil Ratings.

 

The rating agency said strong demand, improving operating leverage and benign credit costs will underpin earnings, even as competition from banks and diversified NBFCs intensifies.

 

Gold-loan NBFCs are expected to clock annualised assets under management (AUM) growth of around 40 per cent between this fiscal (FY26) and next (FY27), significantly outpacing branch additions. In 9MFY26, branch productivity rose about 30 per cent. Average AUM per branch for large players increased to roughly Rs 21 crore, while that for mid-sized peers rose to about Rs 11.5 crore.

 

“An expansion in the lender base and intensifying competition have moderated asset yields in recent quarters for gold-loan NBFCs, though they remain higher relative to many other secured businesses. While the impact on net interest margins (NIMs) has been offset by softening borrowing costs this fiscal, overall profitability has found support from better operating leverage on the back of a surge in demand,” said Aparna Kirubakaran, Director, Crisil Ratings.

 

A sharp rise in gold prices over the past year has materially contributed to AUM growth this fiscal. Additionally, a shift in borrower preference from unsecured loans to gold loans, along with regulatory changes allowing higher loan-to-value (LTV) ratios and flexibility in branch expansion, is expected to support growth prospects.

 

The agency noted that larger gold-loan NBFCs are better positioned to benefit from operating leverage, aided by stronger franchise strength, higher business volumes per branch and continued investments in technology and centralised operations. Their scale enables more efficient absorption of fixed costs.

 

Mid-sized NBFCs, many of which are expanding branch networks to capture incremental demand, may see relatively elevated operating expenses in the near term. However, as these networks scale up and productivity improves, operating leverage is expected to strengthen. These players continue to focus on Tier-II and Tier-III markets, where they have an established presence and face relatively lower competition from banks and large diversified NBFCs.

 

Credit costs remain another key support.

 

“Benign credit costs are another driver of profitability for gold-loan NBFCs. Losses have been historically low because of the collateralised nature of these loans, high liquidity of the underlying precious metal and well-established auction processes. Credit costs have stayed below 1 per cent over the past five fiscals and are expected to remain low. While elevated gold prices over the past year have further strengthened collateral buffers, structural safeguards such as prudent loan-to-value norms and timely auctions should support recoveries in case of correction in gold prices,” said Prashant Mane, Associate Director, Crisil Ratings.