MUMBAI: Soaring gold prices and regulatory streamlining will lead to the assets under management (AUM) of gold-loan focused non-banking financial companies having a compound annual growth rate of 40% between this fiscal and the next, helping them surpassing the Rs 4-trillion-mark by March 2027.
The surge will be driven by elevated gold prices, a shift towards secured credit and an evolved regulatory environment, outpacing the 27% annual growth rate clocked between fiscals 2023 and 2025, Crisil Ratings said in a report Thursday.
Gold prices soared 68% in the first nine months of this fiscal to an all-time high. This enhances collateral values, enabling lenders to scale up disbursements. Furthermore, amid limited availability of credit from segments such as unsecured lending, borrowers are looking out for other sources of funding, the report said, adding, “To capitalise on these lending opportunities, gold-loan NBFCs have been expanding their market presence, despite stiff competition from banks.”
According to Aparna Kirubakaran, a director with the agency, large gold-loan NBFCs, having an established brand image, are scaling up their portfolio across existing branches. Meanwhile, their mid-sized counterparts are adopting a dual strategy of expanding their branch network as well as operating as originating partners for large NBFCs and banks.
“These efforts, combined with strong demand amid elevated gold prices, have boosted their business per branch by 40% over the last two fiscals. Their average AUM per branch stood at Rs 14 crore in the first six months of this fiscal compared to Rs 10 crore in fiscal 2024,” she said.
On the regulatory front, streamlining of loan-to-value (LTV) norms by the RBI for lower-ticket gold loans, applicable from April 1, 2026, is expected to provide additional headroom to them for lending.
According to Crisil, permitting higher LTV of 85% and 80% (vs 75% earlier) for bullet repayment loans with ticket size of Rs 2.5 lakh (comprising 50% of AUM) and Rs 2.5-5 lakh (20% of AUM) respectively are good for these lenders and also for consumers. Higher LTV for lower-ticket bullet loans could potentially increase from 65-68% currently to 70-75% following the implementation of the revised LTV norms, even after factoring the accrued interest as per revised LTV computation guidelines.
“The combined effect of elevated gold prices and revised LTV norms will enable borrowers to avail of more credit against the same quantity of gold, thereby increasing the attractiveness of gold loans,” the agency said.
According to Prashant Mane, an associate director with the agency, demand for gold loans is also being underpinned by a shift among borrowers from unsecured to secured credit. Following asset quality challenges in the unsecured lending space, which was followed by stringent underwriting practices adopted by lenders and stricter regulatory actions, credit availability through this route declined substantially.
Against this backdrop, gold loans have emerged as a strong alternative credit source, offering ease of availability, quick turnaround and flexible repayment options, the report said.
While growth trajectory remains buoyant, effective risk management will be key to support sustainable scaling up. A surge in demand and disbursements at higher LTVs will ultimately lead to lower cushion to manage gold price fluctuations. Therefore, keeping track of LTVs on a mark-to-market basis and maintaining discipline on auctions will be the key, especially in case of any sharp fall in gold prices, the report warns.
Furthermore, these lenders will need to maintain strict control on risk management and operational procedures including purity assessment, weight measurement and authenticity evaluation of the pledged gold. Additionally, periodic internal audits at the branch level will be essential to prevent surprises at the auction stage.
A crucial aspect of their growth story is managing competition. Over the years, these companies have carved out a niche by strengthening internal policies, improving underwriting capabilities and expanding to both prime and non-prime locations. With banks also intensifying presence in the gold loan space, the ability of gold-loan NBFCs to sustain growth momentum while managing competition will bear watching, the report concludes.