India's gold lending sector projected to see 28% growth

India’s gold lending sector is projected to achieve a 28% compound annual growth rate (CAGR) through FY28, making it the second-largest consumer loan category behind home loans. This growth is driven by the formalization of credit and the significant underutilization of the estimated 28,000 tonnes of gold held by Indian households, valued between Rs 380 trillion and Rs 390 trillion.

Gold loans have already surpassed personal and auto loans in portfolio outstanding. Within the banking system, retail gold loans have expanded at a CAGR of 78% over the last three years, outstripping housing and vehicle loans.

However, the industry faces intensifying competition as public and private banks expand their offerings. Specialist gold-loan NBFCs, such as Muthoot Finance, are seeing pressure on yields. Muthoot Finance reported a decline in its net interest margin and yield on assets in 1QFY27, a trend attributed to the moderation of gold-price-led growth and increased competition from diversified NBFCs like Bajaj Finance, L&T Finance, and Shriram Finance.