The organised gold loan market, which continues to hold much promise, got a significant push from the current pandemic and economic downturn, and is expected to grow to ₹4.05-lakh crore this fiscal, according to a report by the World Gold Council.

The organised gold loan market is expected to grow at an annual rate of 15.7 per cent to ₹4.61-lakh crore in FY22 from ₹3.44-lakh crore in FY20, the report said, adding that demand for gold loans, both through banks and non-banking financial company (NBFC), has grown in response to the economic impact of the pandemic.

“With the expansion in branch networks by gold loan NBFCs and a greater use of technology, the growth outlook for the organised gold loan market looks promising in India,” said the report, ‘Gold Loans Help India Weather the Covid-19 Storm’.

Gold holdings

Gold jewellery, kept as a collateral against gold loan by the top-three gold loan NBFCs (Muthoot Finance, Muthoot Fincorp and Manappuram Finance), totalled 298.8 tonnes at the end of last fiscal, the report said, adding that the combined gold holdings of these three NBFCs would rank in the top-20 gold reserves of central banks and supranational organisations ( IMF, ECB, BIS).

Noting that the 28.8 per cent rally in domestic gold price this year has led to increased demand for gold loans, the report said that borrowers have benefited from higher loan value for the same collateral, while lenders have benefited from lower loan-to-value (LTV) ratios on their existing loans and higher demand.

“Demand during the pandemic pushed gold loan AUM higher for India’s leading gold loan NBFCs – the assets under management of Muthoot Finance and Manappuram Finance increased by 15 per cent and 33.4 per cent year-on-year– in the second quarter this fiscal,” the report further said, adding that demand for gold loans during the pandemic has been strong, both through NBFCs and banks.

“The gold loan industry has traditionally been a pillar of support for small businesses and households in need of emergency short-term assistance. In addition to unorganised lending that normally co-exists with any robust gold market, the regulated institutional framework of gold loans in India has made it ubiquitous over the past decade, which is indeed a boon,” noted Somasundaram PR, Managing Director, India, World Gold Council.

A large number of lenders, including NBFCs, have also aggressively promoted their gold loan businesses during the pandemic and economic lockdown and proved to be an easy source of emergency credit for many borrowers.