India’s gold lending market to reach Rs 4.617 billion by 2022
India’s gold lending market is expected to reach Rs 4.617 billion by 2022 at a five-year compound annual growth rate of 13.4%, according to a KPMG report.
The 2018-19 fiscal year saw gold lending companies aggressively expand their branch network in the northern and eastern states of the country, he said.
“Going forward, these companies should focus on optimizing the use of their assets and leveraging their existing branch infrastructure to maximize branch-level assets under management and the reach of the branch. clientele, ”KPMG India said in the“ Gold Financiers Return to the Indian Organized Lending Market ”report. .
The urgency of online and digital models in the gold lending space by non-bank financial corporations (NBFCs) and new-age fintech players who offer gold lending at the customer’s doorstep have opened. an untapped market among digitally enabled customers, he said. .
“Incumbents in the industry should invest more in developing digital integration capabilities that are essential to capture this segment of tech-savvy customers,” he added.
The organized gold lending market comprising banks, NBFCs and Nidhi companies contributes nearly 35 percent of the Indian gold lending market.
According to the report, today’s gold lending companies compete not only with other players, but also with financial service providers.
Although the size of the unorganized gold lending industry, which is estimated to be three times the size of the organized sector, may imply significant growth potential and is actively encroached by financial services players offering lending unsecured, he said.
In recent years, the major players in gold credit have reached geographic saturation and are now exploring other financial products such as microfinance and loans to SMEs to maintain their growth.
The report further states that customers who previously had to pledge gold to fund their emergency cash shortages, sustainable purchases and vacations now have a risk-free opportunity to raise funds without providing collateral.
“Today, lenders are partnering with fintech companies to take advantage of technological advancements to develop enhanced underwriting capabilities that are independent of the availability of customers’ credit histories,” he said. .
With the advent of more robust technology platforms and underwriting systems, the use of unsecured loan products such as personal loans, credit card loans, and durable consumer loans has grown in popularity. he added.
Noting that the main challenges facing the gold lending market are the volatility of gold prices and liquidity stress in NBFCs, the KPMG report said that 2019 saw precious metal prices reach a low. At an all-time high, gold lending companies will be “more conservative” in their approach to disbursing loans until prices stabilize.
These companies will continue to promote loan-to-value (LTV) and low tenure loans to reduce the risk of gold price volatility and prevent LTV breaking, he said. .
Although global gold prices are expected to decline in the long term, the gold lending market is expected to show high growth potential as banks become increasingly selective and strict in disbursing credit. Unlocking new geographies, such as the northeast, will also contribute to the story of growth, he added.
Gold-lending NBFCs will continue to be at the forefront of this journey, the report says, equipped with faster decision-making, faster adoption and conquering new markets will give them a natural advantage over banks.
KPMG in India, however, sees banks tackling this problem by tapping into branches and channels specific to gold lending to give NBFCs a solid fight, the report added.