India’s Gold Loan Market Set for Growth
Insights from Muthoot FinCorp and Manappuram Finance
The gold loan market in India is on the verge of substantial growth, driven by rising gold prices and increasing customer demand. Currently, the unorganized sector controls 63% of the market, while organized players, including banks and Non-Banking Financial Companies (NBFCs), account for the remaining 37%, according to a PwC report. This presents a considerable opportunity for organized players to expand their presence and capture a larger portion of the market.
Indian households are estimated to possess approximately 25,000 tonnes of gold, valued at around Rs 126 lakh crore. Despite this vast wealth, the existing gold loan market through organized channels is valued at just Rs 7.1 lakh crore. With the market penetration of gold loans in India currently at only 5.6%, there is considerable untapped potential within household gold holdings.
Shaji Varghese, CEO of Muthoot FinCorp Limited, stated, “Gold loan assets have been growing steadily and the potential to grow further is high since a major part of the country’s gold loan market is still in the unorganized sector. Gold prices have been rising over the years. There is also a paradigm shift on how buying gold is perceived today. Traditionally gold was purchased for historical, cultural and societal reasons and while that continues, people have started buying gold as an investment and also as a convenient option to raise funds for financial requirements.”
India remains one of the world’s largest consumers of gold, with total demand reaching 747 tonnes in 2023. However, this represented a 3% decrease compared to the previous year, primarily due to the surge in gold prices, which dampened demand for gold jewellery. The price of gold in India increased from Rs 55,375 to Rs 66,532 per 10 grams (22 carats) between November 2023 and May 2024, prompting a shift towards lightweight or lower-carat jewellery items.
V.P. Nandakumar, Managing Director and Chief Executive Officer of Manappuram Finance Ltd, noted, “Of late, the sharp increase in gold prices has imparted some stability to the gold loan book of most players and we do not expect gold prices to come down due to geo-political factors, the accumulation of gold by central banks as well as the lasting allure of the yellow metal.”
The securitisation of gold through various financial instruments offers new avenues for gold loan players to diversify their offerings. By using gold-based security as collateral, established players can introduce new loan products that leverage the intrinsic value of physical gold. This approach not only diversifies their gold loan portfolio but also opens up opportunities for innovation in the gold loan ecosystem.
Doubts Revealed
Gold Loan Market -: This is a market where people borrow money by giving their gold as security. If they can’t pay back, the lender keeps the gold.
Muthoot FinCorp -: Muthoot FinCorp is a company in India that gives loans to people, especially by taking gold as security.
Manappuram Finance -: Manappuram Finance is another company in India that provides loans, including gold loans, to people.
Unorganized sector -: This refers to small, informal lenders who give loans without much paperwork or official processes.
Organized players -: These are official institutions like banks and NBFCs that follow strict rules and regulations to give loans.
NBFCs -: NBFC stands for Non-Banking Financial Companies. They provide financial services like loans but are not banks.
25,000 tonnes of gold -: This means Indian households together own a huge amount of gold, which is about 25,000,000 kilograms.
Formal lending structures -: These are official ways of giving loans, with proper paperwork and legal processes.
