Gold Financing in India: The Next Level

Historically, the India gold financing business has been considered similar to NBFCs. The organized players in India are few. However, these organized players including public sector banks, private banks and NBFCs have registered 35%–40% growth over past few years and the size of business from organized players had been expected to reach to Rs.50,000–53,000 crore by the end of the last financial year.

PE investors find gold financing business most attractive as there is secured lending with near-zero defaults or losses. The sector is poised to see some more players to get into the fray.

The recent gold surge has increased the prospects of gold financers to get outside funding in the form of private equities to carry forward their expansion plans.

Considering the attractive returns on gold investments, private equity (PE) investors find no problem lending money to the gold financing companies. In fact, Indian gold demand has grown 25% despite 400% price rise of the rupee in the last decade. Research reaffirms India as a key driver of global gold demand, expects increase by over 30% in real terms.

The World Gold Council research shows that by 2020 cumulative annual demand for gold in India will increase to excess of 1200 tons or approximately Rs. 2.5 trillion, at current price levels.

India's continued rapid growth which will have significant impact on income and savings, will increase gold purchasing by almost 3% per annum over the next decade. Indian demand for gold will be driven by savings and real income levels, not by price.

With modernity wafting in the air, the scenario is changing. Lenders are introducing all sorts of funds, from gold mortgage loans to gold ETFs, and receiving overwhelming responses.