Gold Loan Market to Double by 2029: PwC India: Rediff Moneynews

New Delhi, Aug 22 (PTI) The organised gold lending market in India is estimated to double in the next five years to Rs 14.19 lakh crore, despite an expected slowdown in growth due to tighter regulations, a PwC India report said.

According to a report titled ‘Hitting the Gold: Growth of the Gold Loan Market in India’, the organised gold loan market has shown significant growth during the fiscal year 2023-24, reaching a valuation of Rs 7.1 lakh crore.

“It is expected to reach approximately Rs 14.19 lakh crore by fiscal 2029 at a five-year CAGR of 14.85 per cent,” it said in a statement.

Indian families own huge amounts of gold, estimated at 25,000 tonnes. Existing gold holdings in Indian households are valued at around Rs 126 lakh crore, the report said.

The report further said the gold lending market is expected to see moderate growth over the next two years as gold lenders face increased scrutiny from regulators over maintaining Loan to Value (LTV) ratios and auction procedures.

“The lack of activity by the second largest player in the gold-backed loans market will impact market growth in fiscal year 2025,” the report reads.

Moreover, the RBI’s advisory to non-banking financial companies on cash withdrawals, which limits the withdrawal amount to Rs 20,000, may lead customers to rely on the unorganised sector.

The regulator also raised concerns about the process of assessing lending activities conducted by fintech startups.

PwC says increased regulatory scrutiny and changed guidelines have led to a decline in share prices of leading non-bank finance companies.

“Gold lenders are expected to use this period to ensure they are compliant with all regulatory guidelines while also taking a number of steps to optimise their customer service centres and back office through digitalisation initiatives,” the release said.

Lenders are also expected to implement cost-saving initiatives that will help boost their businesses’ net profitability and bolster investor confidence, which has been hit by regulatory scrutiny.

The report further pointed out that rising gold prices over the last financial year may also prompt lenders to be cautious about interest rates and loan pricing as any fall in gold prices will result in a significant breach in the LTV ratio, further creating operational headaches for lenders in the form of auctions.

“The growth of the gold lending market is expected to be driven by both banks and non-banking financial firms,” the report reads.

The emergence of digital gold loan aggregation platforms and their strategic partnerships with gold loan lenders such as banks and non-bank finance companies will be a key driver for the industry, enabling gold loan lenders to reach a previously untapped segment of digitally savvy customers.

“While the projected growth in the gold lending market represents potential growth for all players, the impact on players may be mixed. Banks are expected to benefit from lower interest rates,” PwC said.

Jaikrishnan G, Partner (Financial Services), PwC India said that gold lending is the oldest form of credit. It remains one of the most attractive options for both consumers and lenders.

“High return on assets, manageable risk, timely regulatory interventions, growing adoption, technology-led operating models – all these have contributed to the growth of the sector. As India embraces the vision of Viksit Bharat, gold loans will provide much-needed liquidity and access to credit for the growing segments of small and medium entrepreneurs,” he said.

The report further pointed out that the growth of the NBFC sector is likely to be driven by their expansion and increased reach in low-penetration regions, which will attract new credit customers to the financial services ecosystem.

In addition, fintech companies will play a key role in bringing the necessary technology and innovation to the industry, helping lenders create unique product propositions that will drive growth, the release reads.

This is largely due to the southern part of India, which is emerging as the dominant market for gold loans, with a share of 79.1 per cent in the total outstanding loans.

The report also noted that it can be assumed that the entire gold worth Rs 126 lakh crore will not be available for pledge due to various reasons such as jewellery belonging to religious institutions, jewellery having emotional value and also certain types of jewellery belonging to individuals who do not require finance.