The country’s gold loan market is likely to touch `4.61 lakh crore by 2022, growing at a five-year compounded annual growth rate of 13.4%. The gold loan companies are expected to focus on optimising their asset utilisation and leveraging their existing branch infrastructure to maximise the branch-level asset under management (AUM) and customer outreach, said a latest KPMG report titled ‘Return of gold financiers in India’s organised lending market’. KPMG in its earlier report had predicted that India’s gold loan market would reach Rs 3.10 lakh crore by 2019-20.
The financial year 2018-19 witnessed gold loan companies aggressively expanding their branch network across the northern and eastern states. The emergence of the online and digital models in the gold loan space by NBFCs and new-age fin-tech players that offer gold loans at the customer’s doorstep have opened up an untapped market among digitally enabled customers. The industry incumbents are expected to invest more in developing digital on-boarding capabilities that are critical to capturing this segment of tech-savvy customers, the report said.
As 2019 saw prices of the precious metal reaching an all-time high, the gold loan companies will be more conservative in their approach towards disbursing loans until prices stabilise. These companies will continue to promote low loan-to-value (LTV) ratio and low-tenure loans so that the risk of volatility in gold prices is reduced and prevent an LTV breach.
The report said although global gold prices are forecast to reduce over the long term, the gold loan market is expected to demonstrate high growth potential as banks are becoming more selective and stringent in credit disbursement. Unlocking new geographies, such as the northeast, will also add to the growth story.
The organised gold loan market in India is occupied by multiple players such as banks, NBFCs and trusts, catering to various customer segments. The report suggests that in such a competitive market, geographic expansion is one of the key factors in furthering business growth. Several of the top NBFCs that have a firm hold in their home states have also gained traction in other states to maintain growth in their lending books. Jammu and Kashmir, Ladakh and northeastern India are not completely tapped by gold loan companies due to poor connectivity and internal conflicts.
Gold loan NBFCs will continue to be the front-runners in the expansion, equipped with quicker decision-making and faster adoption and capturing newer markets will give them a natural advantage compared to banks. KPMG, however, sees banks tackling this by operating gold loan specific branches and channels to give the NBFCs a strong fight, it said.
Various new-age fine-tech companies and traditional players have started to offer innovative products such as online gold loans catering to the young and urbane population. Besides, gold loan companies have come up with various operating models to facilitate online gold loan processing. In a scheme launched by one of India’s largest gold loan NBFCs, the NBFC executives visit customers’ residence and help them take loan in the comfort of their homes, the report said.