A recent KPMG report predicts that value of organised gold loan market in India will grow to Rs 3,10,100 crore by 2020 at a three-year compounded annual growth rate (CAGR) of 13.7 per cent. In 2015-16, the gold loan market in the country had recorded a 10.82 per cent growth with a value of Rs 1,96,600 crore. The report predicts organized gold loan market in the country to grow to Rs 2,39,100 crore in 2017-18 with a growth of 11.8 per cent and to Rs 2,74,000 crore in the next financial year with a growth of 14.6 per cent.
However, factors like increasing regulations, low future outlook for gold prices in the next 2-3 years, evolving saving pattern of consumers, data security etc will be challenges for the industry, warns the report.
India is one of the largest consumers of gold with an estimated stock of 23,000 tonnes. About 40 per cent of the gold loan market is in South India. Public sector banks and NBFCs like Muthoot Finance and Manappuram control nearly 81 percent of the organised gold loan market. Informal players in the sector like pawn brokers and money lenders, which are unregulated, control 40-60 percent of the gold loan transactions in the country, say estimates.
The report said growth drivers for the industry would be exclusion from mainstream personal and retail loans by scheduled banks, changing attitudes towards applying for gold loans, geographical demands, large volume of existing gold held by rural communities, availability of gold loan in extremely flexible terms and lower default rates in the supply side.
The report said gold loan companies are expected to continue delinking the gold price volatility risk by offering more variants of lower tenure loan products. Increased competition from Small Finance Banks (SFBs) will reduce the yield and players should invest in technology and automation to a great extent. The space is likely to see interesting partnerships with fintechs to help streamline and automate processes.
The report said the industry is on a growth trajectory and key players have started leveraging technology (online gold loan), personalised loan schemes, improved branding and targeted marketing. Another key recent action was to de-link gold price volatility to business profitability. Though demonetization caused a temporary shortfall in business, the negative impact was short-lived as key players moved to digital payments. The digital ecosystem has created credibility and has tilted in favour of the specialised gold loan NBFCs.