The organised gold loan (GL) business of banks and non-banking financial companies (NBFCs) is projected to exceed ₹10 lakh crore in the current financial year and ₹15 lakh crore by March 2027, rating agency ICRA Ltd. said in a report.

The banks would remain dominant players driven by their gold jewellery-backed agriculture loans, it said adding the NBFCs currently dominating in retail gold loans would expand at 17-19% in FY25. Overall organised GL expanded at a compounded annual growth rate (CAGR) of 25% over the period FY20-FY24, driven by banks, which expanded these loans at a higher CAGR of 26%, while the NBFCs expanded theirs at 18% during the same period.

Agriculture loans drive Bank GL growth

“Bank GL growth was driven by agriculture loans backed by gold jewellery, which grew at a CAGR of 26% during FY20-FY24, while their retail GLs grew by 32% on a lower base. Consequently, the share of the NBFCs reduced during this period, which were largely focussed on retail GLs for consumption or business purposes,” it said.

“Public sector banks (PSBs) accounted for about 63% of the overall GL in March 2024, up from 54% in March 2019, while the NBFC and private banks’ shares moderated by equal measure during this period. The NBFCs, however, continue to hold a stable share in the retail GL over the last 3-4 years. ICRA expects NBFC GL to expand at 17-19% in FY2025 and projects it to grow at a CAGR of 14-15% during FY26-FY27,” it added.

A. M. Karthik, Co-Group Head, Financial Sector Ratings, ICRA Ltd. said, “Over the recent past, NBFC GL growth trends were influenced by the trends demonstrated by other loan products, namely microfinance, unsecured business or personal loans, which are also targeted at similar borrowers.” 

“With intensifying headwinds for unsecured loans, resulting in lower growth vis-à-vis the previous fiscal, and supported by buoyant gold prices, the NBFC GL book growth revived in FY24 and the trend is expected to continue into FY25,” he added.