Why Gold Loans Continue To Shine In These Troubled Times


Gold represents a large portion of Indian household wealth and this asset has proven to be useful during the time of financial stress caused by the pandemic. The demand for gold loans was strong last year and the trend continues in 2021-2022 as well.

The demand for gold loans from micro-enterprises and individuals – to finance working capital and personal needs respectively – has increased with the resumption of economic activity and the start of the holiday season, which coincides with the relaxation of containment restrictions by several states, Crisil said in a recent memo.

Loans against the gold jewelry portfolio of scheduled commercial banks jumped 59.1% to 63,770 crore yen as of September 24, 2021, from 40,086 crore yen in September 2020, according to data from the Reserve Bank of India. SCB LAGJ’s portfolio stood at 28,163 crore as of September 27, 2019.

Q2 disbursements

Second-quarter bank results show continued demand for gold lending, while non-bank financial companies focused on gold lending also said there remains a strong appetite for such lending.

“We remain optimistic about gold lending. Year to date gold lending has increased 26% and we expect gold lending to grow 25-30% this fiscal year, ”said Shyam Srinivasan, Managing Director and CEO of the Federal Bank after the second quarter results.

Private sector lender gold loan disbursements reached 15,976 crore in the quarter ended September 30, 2021.

CSB Bank also announced a 10.3% year-over-year increase in gold lending for the second quarter of the fiscal year.

The second quarter results of the gold-focused NBFCs – Muthoot Finance and Manappuram Finance – should shed light on this trend, but analysts said they likely would have seen good growth.

“We anticipate healthy growth in the gold lending portfolio for Manappuram Finance and Muthoot Finance given the various attractive interest programs introduced by these gold financiers to attract large gold lending clients. Since gold prices are stable, we would expect gold financiers to offer some relief to clients (especially those who continue to pay interest) to repay rather than rushing to auction their gold, ”said a recent report from Motilal Oswal.

IIFL Finance also reported 19% year-on-year growth in its gold loan assets under management to 13,600 crore as of September 30, 2021.

Will growth be sustained?

Umesh Mohanan, executive director and CEO of Indel Money stressed that the economy is getting back on track, but a large number of sectors are still severely affected.

“People who are trying to reopen or restart their businesses need urgent cash flow, and for this gold loan is a convenient and quick option that does not require a credit check. Gold is actually becoming an alternative capital option, ”he said.

Indel Money has seen 25% year-on-year growth in gold lending and expects demand to continue. The average loan size is 75,000 to 85,000 and the average term is 1 year.

Experts point out that small business owners, many of whom have taken the moratorium or restructuring, may now find it difficult to get a loan from the bank.

In this case, gold loans prove to be a useful option.

Vice President Nandakumar, Managing Director and CEO of Manappuram Finance, said: “With the unorganized sector also recovering, we expect increased growth in gold lending, microfinance, as well as our others. vertical markets. “

Assets under management (AUM) of non-bank financial corporations (NBFCs), which mainly offer loans against gold, are expected to increase 18-20% to 1.3 lakh crore this fiscal year, according to Crisil forecasts.

PSBs in the lead

According to a recent report from ICICI Securities, the organized gold lending industry, including agricultural lending, has grown even faster since 2018-19, growing nearly 31% in 2020-21 due to the cautious stance taken by institutes in other lending products due to the pandemic-affected economy and rising gold prices.

Public sector banks held the largest market share in the organized gold lending sector (excluding agricultural loans) with around 44% in 2017-18, compared to 34% of specialized NBFCs and 12% of private sector banks.

The report estimates that overall, the market share of banks in the organized gold lending sector, including agricultural lending, increased to around 75% in 2020-2021, from around 73% in the last year. ‘fiscal year 2019-20.

“If the share of banks versus NBFCs in the organized gold lending sector, including agricultural lending, is observed, the share of banks is expected to have increased in fiscal year 2020-21 due to the increase in LTV or loan-to-value and the risk aversion of banks in other loan products. “, He noted.

However, the operational nature of the business, the existing infrastructure well distributed across India and a well-established customer base provide strong business gaps for specialist NBFCs, he said.

Online gold loans are also catching up.

The Federal Bank, in its presentation to investors, said disbursements through fintech-enabled microcredit and gold platforms exceeded 3,800 crore.

Recently, asset-backed digital lending platform Rupeek signed an agreement with Kerala-headquartered South Indian Bank as a lending partner to provide online gold lending services. The service is however initially available in limited cities.

Gold price, refunds

Experts note that gold prices have remained stable, which has led to low delinquency among borrowers and has helped NBFCs fare better than banks in the sector.

“Although there was a moderation in gold prices during the second half of FY21 with gold prices falling by around 10% from the peak in August 2021, the decline has been moderate since the start of 2021-2022, “ICRA said, adding that the gold lending NBFCs have reported low gross net productive assets (GNPA) since fiscal year 2017-18 .

Many NBFCs also change the typical one-year term for gold loans to shorter terms of three or six months.

Gold loan auctions, which surged earlier this year, are also expected to normalize as economic conditions improve.


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