As per the recent report by KPMG titled ‘Return of Gold Financiers in India’s Organized Lending Market’, the gold loan market of the country is expected to reach around Rs 461,700 crore by 2022. This is estimated based on the five year compounded annual growth rate from FY18 to FY22 of 13.4%.
The gold loan companies in FY 2019 expanded at an aggressive rate in the areas of northern and eastern states as the companies had low market penetration here. Now moving forward, the report stated that the focus of companies would be more on optimizing the asset utilization and leveraging the existing network of branches that they have in order to maximize the branch asset management and customer outreach.
In India, people are emotionally attached to gold jewelry. Therefore, they rather prefer to pledge their ornaments instead of selling them. On a broader level, gold loan lenders are classified as the formal (organized) sector and informal (unorganized) sector.
The quantity of gold with customers is a key parameter in determining the size of the gold loan market. It is estimated that the total outstanding Gold Ka Rate in the organized sector for the year 2019 is 5.5% of the total gold held by households in India. This number indicates that market penetration is still very low. However, after considering the increased economic activity in rural India and easing the monetization of gold loan, the demand for gold loan is expected to rise significantly in the future.
The public banks, private banks, cooperative banks, small finance banks, non-banking finance companies and Nidhi companies are currently contributing 35% of the overall Indian gold loan market, which is basically the organized market. Although, the NBFCs in the gold loan market have consistently increased their market share thanks to their aggressive branding, geographic expansion and promotions.
The pawnbrokers and moneylenders have been providing gold loans to people for centuries. Currently, the unorganized gold loan market is about 65% of the total market. With their knowledge of the local market, the players of the unorganized sector are able to provide quick loans with least or no documentation and levy a high rate of interest. Since the unorganized market is entirely unregulated, the customers are exposed to the risk of exploitation by these players.
To cater to the young urban population and their demand for gold loan, various fintech companies have introduced innovative products like an online gold loan. The prime target of these products is the young and digitally literate people within the age group of 25 to 40. India is counted among the largest consumers of the yellow metal. It accounted for almost 23% per cent of the global demand for gold between 2009 and 2018, as per the estimation of the report.
As surprising as it may sound, the primary gold holdings in India is situated in rural areas as it comprises around two-thirds of the total demand of India for gold emerged from rural communities. Although, it is not surprising that India is among the top consumers of gold in the world.
In the past five decades or so, the gold prices in India have shown an upward movement. It was the year of 2003 in which the gold prices witnessed a never before surge in price, and it went to a whole new level which was hardly imagined by anyone. The prices went on increasing till 2013 after which it saw a bit decline. However, in recent times it seems that the gold rate has stabilized and is handling the market well.
As a whole the gold loan markets are expected to demonstrate a high level of growth. The Banks are also becoming more selective and stringent in terms of the credit disbursement.
The report further said that customers who previously had to pledge gold to fund their emergency cash shortages, consumer durable purchases and holidays now have a risk-free avenue to source funds without providing any collateral.
On the other hand, we can conclude that the customers make use of gold for different forms such as ergency like cash shortage, or purchase of any form of consumer durable. Also, the people can be stress free and the gold kept would be safe.
On the other hand, the lenders are the ones who can partner with the fintech companies in order to leverage
Lenders today are partnering with fintech companies to leverage the advancement in technology for developing enhanced underwriting capabilities that are agnostic to the availability of customer credit history,” it said.
Also, while we are observing the current trend, the lenders prefer to partner with the fintech companies. This approach can help to keep updated with the technology and reach more customers. The finance industry at a larger level is expanding and helping create awareness among the people.