Gold Loan Boom: Rs 14.5 lakh crore market spurs NBFCs to add 3,000 branches

India's gold loan industry is poised for major expansion as non-bank lenders prepare to add nearly 3,000 dedicated branches over the next year, the Economic Times reported. The fast-growing market, largely dominated by state-owned banks, rose 36% year-on-year to reach Rs 14.5 lakh crore by the end of September.

Industry executives told the Economic Times that this planned branch rollout is among the largest annual expansions seen in the segment. Many lenders are setting up exclusive gold loan branches to capitalise on rising demand while also extending the product to their existing networks.

George Alexander Muthoot, managing director of Muthoot Finance, said to the Economic Times that demand for gold loans has surged as borrowers who are unable to secure unsecured microfinance loans are increasingly turning to gold-backed credit to meet their financial needs. The microfinance sector has tightened lending norms amid heightened asset quality concerns, pushing more customers-particularly farmers and small traders-toward jewellery-backed loans. Strong gold prices have further boosted loan eligibility.

ICRA told the Economic Times that the organised gold loan market is expected to touch Rs 15 lakh crore in FY26, a year ahead of earlier projections. Shaji Varghese, CEO of Muthoot Fincorp, said the momentum is likely to continue, with central banks worldwide driving gold demand and prices. His company plans to open 200 new branches by March.

Leading players such as Muthoot Finance, Muthoot Fincorp, IIFL Finance and Bajaj Finance are collectively expected to open around 1,800 branches. Bajaj Finance alone aims to add 900 gold loan branches by March 2027, while IIFL Finance plans to set up 500 by the end of this fiscal year.

L&T Finance, which entered the segment in February through its acquisition of Paul Merchants Finance's gold loan business, intends to add 200 branches by the close of the fiscal year, the Economic Times reported.

The perception of gold loans has evolved, with industry executives describing it as a responsible and mainstream credit product rather than a distress-driven option. Manish Mayank, head of the gold loan business at IIFL Finance, told the Economic Times that about 70% of borrowers use gold loans for agriculture and small business needs, while the rest use them for home improvement, weddings, and other planned or urgent expenses. Salaried customers increasingly use the product for short-term liquidity.

Poonawalla Fincorp managing director Arvind Kapil recently said the company remains on track to achieve 400 branches by March 2026, with most openings planned in tier 2 and tier 3 cities. Piramal Finance, which is preparing to enter the gold loan segment, expects to open about 100 branches in its first year.

Several microfinance firms-including Hyderabad-based Keertana Finserv and Kolkata-based Uttrayan Financial Services-are also diversifying into jewellery-backed lending to stabilise their businesses. Keertana Finserv promoter Padmaja Reddy told the Economic Times that the company is scaling down its microfinance portfolio and will add 175 gold loan branches by FY26.

Setting up a gold loan outlet requires extensive security infrastructure, including strong rooms, vaults, CCTV systems and sensors. Chief executives told the Economic Times that the investment typically ranges from Rs 8 lakh to Rs 20 lakh, with branches generally breaking even within 1.5-2 years. Gold loan NBFCs require prior approval from the Reserve Bank of India to open new branches if they have more than 1,000 outlets, a condition that does not apply to non-gold NBFCs.

ICRA senior vice president AM Karthik said gold loan assets under management by NBFCs are expected to grow 30-35% in FY26, supported by high gold prices and slowing growth in unsecured loan categories that target similar borrower groups. He added that the large pool of unutilised gold holdings in the country offers considerable growth potential.

Public sector banks continue to lead the gold loan market, particularly in agriculture-linked lending. Their gold loan portfolios grew at a CAGR of 27% during FY24-FY25, outpacing the 22% growth seen among private sector lenders despite the latter's smaller base, the rating agency told the Economic Times.

Source: https://www.moneycontrol.com/news/business/gold-loan-boom-rs-14-5-lakh-crore-market-spurs-nbfcs-to-add-3-000-branches-13694425.html