In the last few years, gold loans have managed to solidify their market position as a robust source of funding. Several factors such as high loan quantum, ease of accessing funds, and smooth repayment process continue to add to its popularity and strengthen its future in the market.
That said, read along to gain insights into the future of gold loan in India and what it means for borrowers.
Gold Loan's Position in the Current Market
A report by the World Gold Council suggests that we can expect the gold loan market to expand at 15.7% annually. As a result, it is anticipated that the market could touch Rs. 4.617 trillion mark in the financial year that will end on March 2022. In the year ending March 2020, the market was valued at Rs. 3.448 trillion.
Gold Loan Share in Organised and Unorganised Sector
In a report from 2020, KPMG stated that the outstanding gold loan in the organised sector made up 5.5% of total gold in households in 2019.
Similarly, it stated that organised lenders make up a 35% share of the country's gold loan market. On the other hand, unorganised lenders make up 65% of the market share.
Based on KPMG's report, the organised lender has a huge upside and opportunity for growth. In fact, experts believe that the organised sector of the gold loan market has immense potential to expand its assets under management to twice its current size within the next 10 years.
Factors Impacting Gold Loan Popularity
Q1 of 2021 witnessed a dip in gold rates. However, the same has recovered significantly in recent times.
In fact, the total outstanding gold loan among financial institutions increased to Rs. 604.64 billion in March 2021 from Rs. 185.96 billion in early 2020. However, total outstanding loans held with financial institutions grew at a slow rate of only 8.3% during the same period.
Some of the factors responsible for the improvement in gold rates and gold loan demand include:
● NBFCS renewed interest in expanding gold loan credit facilities for business and emergencies.
● Bullish outlook on gold price rally since 2019 continues to add to the popularity of loans taken out against gold ornaments and coins.
● Demand for gold loans increased when households faced a pandemic induced financial crisis.
Gold Loans Amidst Pandemic
Like any other economy, India is recovering from the pandemic induced financial crisis. In such a situation, a healthy improvement in the country's economic activities is expected. Experts believe that gold loans for businesses and home improvement could see a boost.
This is because a gold loan has always been considered a viable option to access funds for short-term requirements.
A. Gold loan in an emergencyGold loan is an effective financing option that allows individuals to leverage their gold ornaments to access funds. Eligible applicants can raise up to 75% of their gold value as a loan. Lenders depend on external/internal appraisers to determine the value of the pledged gold. Since it is a secured loan option, most NBFCs follow a simple application and quick disbursal process. This makes gold loans an ideal financing option to cater to requirements like a medical emergency, education, etc.
B. Working capital requirementsA significant surge in demand for gold loans from a self-employed segment of borrowers and micro enterprises has been noticed in recent years. With the economic boost, business activities, and emphasis on expanding micro industries and companies, more individuals leveraged their gold to access working capital.
In fact, as per a report published by CRISIL, factors such as easing of lockdown restrictions, need to replenish business capital coupled with the festive season have worked in favour of availing funds through means like gold loans.
Leading NBFCs expect that the future of gold loans in India portfolio could witness a favourable surge. Experts believe that multiple catalysts put in place by NBFCs will continue to push the demand for gold loans among borrowers.
For instance, many believe these following factors could help strengthen the footing of gold loans even further.
lending institutions such as SBFC offer up to 75% of gold’s value as a loan. Applicants can also benefit from the Gold Genie facility, where they can apply for a gold loan from the comfort of their homes and under the guidance of experts.
Conclusion
It can be said that traits of gold loans and external factors such as an increase in gold value, a rise in the level of inflation, and a fast-paced economic recovery will boost its demand further.
Additionally, if NBFCs continue to make gold loans more accessible to borrowers and simplify the process of repayment further, this credit option will continue to shine in the future. This will make the funding option more popular and improve the borrowing experience for those in need of funding.
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