NBFCs gain ground in gold loan market as bank growth cools

Non-banking financial companies (NBFCs) are strengthening their position in the gold loan market, with credit against gold jewellery expanding at a faster clip than offerings from scheduled banks. NBFC gold loan portfolios grew 68.5 per cent year-on-year in July, outpacing the deceleration witnessed in the banking sector.

Scheduled banks, which had dominated growth in this segment just twelve months earlier, reported a significant moderation in their expansion trajectory. Bank credit against gold jewellery rose 88.1 per cent in July, a sharp decline from 136.4 per cent recorded in the corresponding month last year. The softening reflects changing dynamics in consumer preference and competitive pressures within the secured lending market.

The shift underscores NBFCs' improving competitiveness in retail lending, particularly in gold-backed advances that cater to India's large informal economy and rural populations. With streamlined approval processes and flexible lending terms, non-bank lenders have captured growing market mindshare. The diverging growth rates suggest structural changes in how Indian consumers access short-term credit secured against precious metals.

Industry observers attribute the moderation in bank growth partly to calibrated lending policies and tightening risk management standards. The outperformance by NBFCs, meanwhile, reflects aggressive market expansion strategies and their nimble operational advantage in underserved lending segments.