Gold loans double as Covid-hit people pledge family jewellery

Chennai: Gold loan disbursements by NBFCs have more than doubled in September quarter over the previous quarter. They are expected to clock 15 to 18 per cent growth this year on increased demand and higher gold price.

Preliminary estimates indicate that gold loan disbursements, including re-pledge with NBFCs have more than doubled sequentially in the second quarter of this fiscal, finds Crisil.

 Growth was flat in the first quarter of this fiscal because of low disbursements in April and May due to the country-wide lock down. Manappuram Finance saw its gold loan portfolio growing by 2 to 3 per cent in April- May as customers have been availing gold loan using online products. Muthoot Finance too had seen a flattish growth during the lock down.  

 With the Covid-19 pandemic-driven lock downs being lifted slowly and economic activity clawing back, demand for gold loans has risen, especially from individuals meeting urgent personal requirements and from micro enterprises for working to restart businesses. Gold loans would be preferred also because non-banking financial companies (NBFCs) and banks have tightened their underwriting norms for other loans, leading to cautious lending to micro and small enterprises, traders and the self-employed.

 Crisil expects assets under management of NBFCs to grow 15-18 per cent this fiscal. Motilal Oswal too expects gold loan NBFCs to deliver 15 per cent CAGR over FY20-23.

 “In the current scenario, we believe gold financiers would benefit as customers would look to raise cash by leveraging their gold holdings and increase in gold prices would give a modest impetus to growth.  Inability of customers to get personal loans due to lack of formal documentation, higher share of rural business and flexi-lending terms will support gold loan business,” finds Motilal Oswal Financial Services.

 “Unlike other asset classes, gold loan has not faced major issues in collection and disbursement, or re-pledge of loans, barring in the stringent lock down phase in April and May,” said Krishnan Sitaraman, Senior Director, CRISIL Ratings.

 In order to provide a smooth re-pledging process in times of pandemic, larger NBFCs are offering online renewal since the underlying collateral is already in their possession.


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