NBFCs see demand for gold loans soar

Hyderabad: With a slowdown in the traditional sources of funding as people grapple with Covid-19 induced financial stress, non-banking financial companies (NBFCs) are seeing demand for gold loans rise across customer segments.

Thomas Muthoot, executive director, Muthoot FinCorp Limited, attributed the high growth in demand for gold loans to two factors – firstly, gold loans were available easily to meet immediate demands as compared to other options.

Secondly, the gold prices reigning on the higher side also meant a higher loan availability for customers. In FY 2020-2021, Muthoot FinCorp expanded its physical network by more than 100 new branches, mainly in the north, east and west regions of India, most of which were in rural and semi-urban areas. The NBFC had opened 70 branches in FY20.

In August 2020, RBI had increased the gold loan to value (LTV) ratio to 90% from 75% until March 31, 2021. The apex bank has now reverted the LTV ratio to pre-Covid levels of 75% this financial year. As per RBI data, the outstanding loans against gold has nearly doubled to Rs 60,464 crore in FY21 as against Rs 33,303 crore in FY20.

Even Ashish Panchal, chief of staff – corporate strategy of Pune-based Bajaj Finance Limited, said the NBFC increased its gold loan branches from 480 to 700 in the last financial year. “The acceptability of gold loans as a means of quick and low-cost funding for personal and business needs is growing. We have plans to add another 100 plus branches this fiscal,” he said, adding that its loan book grew 52% last year to Rs 2,300 crore. He also pointed out that the popularity of gold loans as a short-term working capital option has grown, which has led to an increase in ticket sizes from Rs 75,000 to Rs 85,000 last year.

Bengaluru-based Rupeek Fintech Private Limited, that mainly caters to urban customers, too confirmed that there has been a higher inflow of new consumers during the pandemic due to the scarcity of credit from other channels and higher requirement of credit due to distress. “Our disbursals grew 2.5 times during the calendar year 2020. We were in 10 cities by the end of 2019 and we have added 17 more to our list through 2020-2021 till date,” Abhinav Vadrevu, senior director – growth at Rupeek Fintech said.

The NBFC expects the momentum to continue and the formal gold lending market to grow between 15% – 20% Y-o-Y in the next couple of years due to two factors. The first being an expected post pandemic boom to restart businesses, which means there will be higher requirement of credit. Secondly, there will be higher technology adoption and digitisation in the industry along with the advent of innovative models leading to increased adoption of gold loans from consumers who were reluctant to use the category owing to higher interest rates and social stigma, he said.

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