Gold loan market could touch Rs 4.61 lakh crore by 2022: KPMG

As 2019 saw precious metal prices hit an all-time high, gold lenders will be more cautious in their approach to loan disbursement until prices stabilize.

The country’s gold loan market is expected to touch 4.61 lakh crore by 2022, growing at a compound annual growth rate of 13.4% over five years. Gold lenders should focus on optimizing their asset utilization and leverage their existing branch infrastructure to maximize assets under management (AUM) at the branch level and customer outreach , said a latest KPMG report titled “The Return of Gold Financiers to Organized Lending in India.” Marlet’. KPMG in its previous report predicted that the Indian gold loan market would reach Rs 3.10 lakh crore by 2019-2020.

The 2018-2019 fiscal year saw gold lenders aggressively expand their branch network in northern and eastern states. The emergence of online and digital models in the gold lending space by NBFCs and new era fintech players who offer gold lending at the customer’s doorstep have opened up an untapped market among digitally enabled customers. Industry incumbents should invest more in developing digital onboarding capabilities that are key to capturing this tech-savvy customer segment, according to the report.

As 2019 saw precious metal prices hit an all-time high, gold lenders will be more cautious in their approach to loan disbursement until prices stabilize. These companies will continue to promote a low loan-to-value (LTV) ratio and term-limited loans to reduce the risk of gold price volatility and avoid an LTV breakdown.

The report says that although global gold prices are expected to fall over the long term, the gold loan market is expected to show high growth potential as banks become more selective and strict in disbursing credit. Unlocking new geographies, such as the northeast, will also add to the growth story.

The organized gold lending market in India is occupied by multiple players such as banks, NBFCs and trusts, which cater to various customer segments. The report suggests that in such a competitive market, geographic expansion is one of the key factors for business growth. Several of the major NBFCs that have a firm foothold in their home state have also been gaining ground in other states to maintain growth in their loan portfolios. Jammu and Kashmir, Ladakh and North East India are not fully tapped by gold lending companies due to poor connectivity and internal conflicts.
Gold lending NBFCs will continue to pioneer expansion, equipped with faster decision-making and faster adoption and capturing new markets will give them a natural advantage over banks. KPMG, however, sees banks tackling this problem by exploiting branches and channels specific to gold lending to give NBFCs an uphill battle, he said.

Various new-age tech companies and traditional players have started offering innovative products such as online gold loans aimed at the young and urban population. Additionally, gold lending companies have come up with various business models to facilitate online gold loan processing. In a program launched by one of India’s largest gold lending NBFCs, NBFC executives visit clients’ residences and help them secure a loan from the comfort of their homes, according to the report.

Financial Express is now on Telegram. Click here to join our channel and stay up to date with the latest Biz news and updates.

Priscilla C. Carnegie