Gold Loan And Its Lasting Allure

The organised sector stands to gain even more in the coming years

Gold as an asset class as well as an object of desire has this unique quality to buck the trend, transcend time and to surprise analysts. Gold price has stayed consistently above $1,920 per troy ounce since October-November last year despite US bond yields firming up during this period due to rate hikes by the Federal Reserve, which was actually expected to dent gold prices. Perhaps, what worked in favour of gold was the prospect of recession in the US, Europe and elsewhere. Historically, during recessions and slowdowns, gold prices surge by 10-20% depending on the duration and severity. All this should be music to the ears of the gold loan industry and the borrowers as it is mutually beneficial.

Apart from buoyancy in gold price, the mere fact that Indian households possess a treasure trove of jewellery worth Rs 85 trillion, as per a November 2022 study by Systematix, points to a robust growth outlook for the gold loan industry. At a Loan-to-Value (LTV) of 75%, this presents a potential market opportunity of Rs 63 trillion. For the nonce, only 20% of this is pledged and this is perhaps split between unorganised and organised players in the ratio of 65:35. This implies that the organised gold loan market is a mere Rs 6 lakh crore out of a potential Rs 63 trillion opportunity, leaving plenty of untapped potential for both banks and non-banks.