Tomorrow, if someone claimed that the phrase “as good as gold” originated in India, no one would be surprised. The country is one of the world’s largest consumers of gold, with the yellow metal holding an undisputable significance in the Indian culture. Naturally, it is also extensively used as a key financial tool. India’s gold loan market, valued at $55.52 Billion in 2022, is projected to hit $124.45 Billion by 2029, growing at a CAGR of 12.22%. Let’s see some recent trends that are working to turn these estimates into facts.
The Indian Gold Loan market is growing slowly but steadily, owing to rising credit demands from both individuals and businesses. Factors like easy loan accessibility, moderate interest rates, flexible repayment options, and minimal documentation have contributed to this expansion. Despite the 5% duty hike imposed on gold by the Central government, the precious metal's demand was not majorly impacted.
In 2022, gold demand in India was anticipated to range around 8-8.5 lakh kilograms, surpassing the previous year's record of 7.97 lakh kilograms. Various initiatives by the Reserve Bank of India, such as the Gold Monetization Scheme (GMS) and Gold Deposit Scheme (GDS), contributed to the market's stability and growth.
According to a 2017 survey by the World Gold Council, 24,000-25,000 kilograms of gold is present in Indian households. During the COVID-19 pandemic, loans against gold jewellery surged from approximately ₹34,000 Crores to around ₹61,000 Crores. By March 2022, it further increased by a fifth to about ₹74,000 Crores.
Currently, India possesses over 27,000 metric tonnes of gold, denoting a potential gold loan market of ₹65 Lakh Crores at current gold rates. Of this, only ₹6 trillion is currently tapped into by the organized sector, the unorganised sector holds a 65% share, while banks and NBFCs make up the remaining 35%.
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India's gold loan market is witnessing neck-to-neck competition as new entrants flood the lending industry. This surge is causing lenders to offer lower interest rates and better terms for borrowers. Several factors contribute to this competition, such as growing demand due to increased disposable income, coupled with rising living costs and a burgeoning middle class.
Lenders are under pressure to innovate, trying to up the ante with features like instant approval, quick disbursal, and flexible repayment terms. The rise of NBFCs and online gold loan platforms has intensified the competition. Now, both traditional and modern lenders are trying to leverage technology for an improved customer experience and gain an edge in this market.
Amidst this surge, India's gold loan market also comes with significant challenges, some of which are –
1. Falling gold prices pose a significant hurdle for the gold loan market. It reduces the value of the gold you can pledge as collateral, hence also impacting the amount you can borrow against it.
2. Growing NPAs present another major challenge. Borrowers default on their loans due to various financial troubles and lenders are unable to get the full value of their gold due to reducing prices.
3. Traditional lenders are facing stiff competition from NBFCs, who are offering gold loans at lower interest rates and more flexible terms, thus changing the gold loan market.
4. Several regulatory hurdles have been introduced by the RBI in recent years. While necessary, these also add complexity to lending operations and make it more challenging for gold loan providers.
5. The recent surge in digital lending presents a formidable challenge to traditional gold loan lenders, who are often not so well-equipped to compete with the accessibility of digital platforms.
The unorganized segment dominates India's gold loan market with more than 60% of the market share at present. Traditionally supported by moneylenders and pawnbrokers, unorganised players offer quick but high-interest gold loans with minimal documentation. In short, this sector is unregulated, which poses risks to customers.
However, a gradual shift is occurring as a substantial chunk of the population is moving to organised lenders, enhancing geographic scope and market penetration. Gold loan NBFCs are capturing a significant share of customers from the unorganized sector, with quicker processing and easy accessibility, hence boosting financial formalisation.
RBI’s Monetary Policy Committee, chaired by Governor Shaktikanta Das, recently convened for its latest three-day meeting from 4th to 6th October 2023. Here, the committee increased the gold loan limit for Urban Cooperative Banks (UCBs) from ₹2 Lakhs to ₹4 Lakhs under the Bullet Repayment scheme. This decision applies to all UCBs that have met their Priority Sector Lending (PSL) targets as of March 31, 2023. Moreover, this decision follows the RBI's commitment to incentivise UCBs that achieve such PSL targets. Previously, Indian UCBs had proposed a limit of ₹5 Lakhs, keeping in mind the ongoing efforts to meet the financial needs of small token borrowers.
The popularity of gold loans continues to rise in India, with more and more people choosing to pledge their precious jewellery and ornaments for quick access to urgent funds. If you want to capitalise on these key trends now is the time to apply for a Gold Loan from Bajaj Markets! Besides interest rates starting from 8.88% p.a. and tenures up to 3 years, you benefit from a hassle-free online application process, quick disbursal, and minimal documentation.