Gold accounts for a large proportion of Indian household wealth and this asset has come in handy during the period of financial stress caused by the pandemic. The demand for gold loans was strong last fiscal year and the trend continues in 2021-22 as well.

The demand for gold loans by micro-enterprises and individuals, to finance working capital and personal needs, respectively, has increased with the rebound in economic activity and the beginning of the festive season, which coincides with the relaxation of the closure restrictions by various states. Crisil stated in a recent note.

Loans against scheduled commercial bank gold jewelry portfolio increased 59.1 percent to ₹ 63,770 crore on September 24, 2021 from ₹ 40,086 crore as of 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.

Second quarter disbursements

Banks’ second-quarter results reveal continued demand for gold loans, while non-bank finance companies focused on gold loans also said there remains a strong appetite for these loans.

“We remain optimistic about gold loans. So far this year, gold loans have increased by 26 percent and we forecast growth of 25 to 30 percent for gold loans this year, ”said Shyam Srinivasan, Managing Director and CEO of Federal Bank after of the results of the second quarter.

Gold loan disbursements from the private sector lender increased to Rs 15,976 crore in the quarter ended September 30, 2021.

CSB Bank also reported a 10.3 percent year-on-year increase in gold loans for the second quarter of the fiscal year.

The second quarter results of the gold lending-focused NBFCs (Muthoot Finance and Manappuram Finance) are likely to shed more light on this trend, but analysts said they were likely to have seen good growth.

“We expect healthy growth in the gold loan portfolio for Manappuram Finance and Muthoot Finance given the various attractive interest schemes introduced by these gold financiers to attract large gold loan clients. Since gold prices have been stable, we expect gold financiers to offer clients (especially those who continue to pay the interest component) some respite to repay rather than rush to auction their gold, “said a report. Recent Motilal Oswal.

IIFL Finance also reported 19 percent year-on-year growth in its AUM gold loans to ₹ 13,600 crore as of September 30, 2021.

Will growth be sustained?

Umesh Mohanan, CEO and CEO of Indel Money, noted that the economy is returning to normal, but a large number of sectors are still severely affected.

“People trying to reopen or restart their businesses need urgent cash, and this gold loan is a convenient and fast option that does not require a credit check. In fact, gold is becoming an alternative capital option, ”he said.

Indel Money has posted 25 percent year-on-year growth in gold loans and expects demand to continue. The average size of loan notes is 75,000 to 85,000 rupees and the average age is 1 year.

Experts note that small business owners, many of whom agreed to the moratorium or restructuring, may now have a difficult time getting a loan from the bank.

In this case, gold loans are a useful option.

Vice President Nandakumar, Managing Director and CEO of Manappuram Finance said: “With the unorganized sector also recovering, we expect better growth in gold loans, microfinance, as well as in our other business verticals.”

The assets under management (AUM) of non-bank finance companies (NBFC), which mainly offer loans against gold, are expected to increase 18% to 20% to ₹ 1.3 lakh crore in this fiscal year, according to Crisil’s prognosis.

PSB lead

According to a recent report by ICICI Securities, the organized gold loan industry, including agricultural loans, has grown at an even stronger rate since 2018-19, with growth close to 31 percent in 2020-21 due to the attitude cautious adopted by finances. institutes on other credit products due to the pandemic-hit economy and rising gold prices.

Public sector banks had the largest market share of the organized gold loan industry (excluding agricultural loans) at around 44 percent in 2017-18, compared with 34 percent for specialized NBFCs and 12 percent of private sector banks.

The report estimated that overall, banks’ market share in the organized gold lending industry, including agricultural lending, increased to about 75 percent in 2020-21 from about 73 percent in the fiscal year. 2019-20.

“If you look at the participation of banks vis-à-vis NBFCs in the organized gold lending industry, including agricultural loans, it is estimated that the participation of banks has increased in fiscal year 2020-21 due to higher LTV or loan to value and risk aversion of banks in other credit products ”, he pointed out.

However, the operationally intensive nature of the business, well-distributed infrastructure existing across India, and a well-established customer base provide strong commercial pits for specialized NBFCs, he said.

Online gold loans are catching up as well.

In its investor presentation, Federal Bank said that disbursements through fintech-enabled microcredit and gold platforms crossed Rs 3.8 billion.

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

Gold prices, rebates

Experts note that gold prices have been stable, leading to low delinquencies among borrowers and helping NBFCs outperform banks in business.

“While there has been a moderation in gold prices in the second half of fiscal 21 with a decline of around 10 percent in gold prices over the August 2021 peak, the decline has moderated as far as It runs from the year 2021-22, “ICRA said, adding that Gold Loan NBFCs have reported low Net Performing Assets (GNPA) since the 2017-18 fiscal year.

Many NBFCs are also modifying the typical one-year tenure for gold loans to a shorter tenure of three or six months.

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

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