The report states that higher GML rates are likely to impact the net margins and cash flows of gold jewellery retailers in the next financial year (FY26)
With a sharp surge in gold lease rates, there has been around 500 basis points (bps) rise in the gold metal loan (GML) rates in the recent past. Higher GML rates are likely to impact the interest cover, net margins and cash flows of gold jewellery retailers in the next financial year (FY26), as per a report.
In a report, Icra stated that the lenders have started increasing the GML rates in the last one month amidst a sharp rise in GLR. Consequently, GML rates have increased to around 7.5 per cent for most of the jewellers from the levels of two to four per cent.
“Increase in GML rates will result in higher financial costs for jewellery retailers with consequent impact on their cash flows and pricing strategies as GML continues to remain one of the preferred forms of working capital loans for most of the large retailers, given the inherent benefit of hedging,” Icra stated.
However, the report added that the players opting for derivate-based hedging would be less affected due to their lower dependency on GML. While, the rise in GML rates up to 500 bps will have limited impact on financial metrics of jewellers in the current fiscal, the report noted that sustenance of such elevated rates will increase the average borrowing rates up to 350 to 375 basis points in FY26.
As far as the demand is concerned, amidst a 28 per cent increase in gold prices in CY2025, the global demand fell by around 11 per cent against which the domestic demand fell by only around two per cent. The report added that stable factors like wedding and festive demand supported by cultural affinity towards gold continued to drive gold consumption in India.
However, the report highlighted that as the prices remain elevated, demand is expected to be subdued in CY25.
