Aided by an uptick in gold prices, non-banking financial companies (NBFCs) extending gold loans have notched up double-digit growth last year by providing easier means of finance when COVID-19 cramped the economy and raised unemployment.
Though official figures are yet to be released, most of them estimate an average growth of 15- 20 percent or more last year.
The rise in yellow metal price has bolstered the demand for gold loans. Normally, such interest is short-lived, but this time because of Coronavirus, the impact in incremental demand continued.
The weakening of yellow metal prices towards the fag end of 2020 and the first quarter of 2021 hit the gold loan business. Attempts to cash in on strengthening demand following a recovery in prices, post-April, were hindered by lockdowns in many states.
‘Disruptions in unsecured loan market one factor’
Muthoot Fincorp Ltd, one of the leading gold loan NBFCs, saw a 28 percent growth in 2020, the highest in the last few years.
Thomas John Muthoot, MD, Muthoot Fincorp, attributes the growth to disruptions in unsecured loans and an escalation in gold prices. “The pandemic caused the unsecured loan market to dry up, forcing people to look up to secured options,’’ he said. While costly gold provided better loan-to-value (LTV) for customers, accessibility and convenience attracted more people, especially small and medium traders, to gold loans, he said.
The company is continuing several schemes launched last year, including unchanged interest rates. “We are hoping that the business would pick up once lockdowns are lifted,’’ said Muthoot.
Manappuram Finance Ltd, another major gold loan NBFC, recorded 24 percent growth in 2020 (January-December). “The growth in 2020 is due to a confluence of factors, influencing demand and availability of credit. The national lockdown increased the risk aversion on the part of banks and other NBFCs, leading to a credit squeeze, while surging gold prices led to customers increasingly opting for gold loans,’’ said VP Nandakumar, MD and CEO, Manappuram Finance.
The quarter-on-quarter (QoQ) growth in the September-December period slowed to 2.41 percent as compared to the preceding July - September period, when growth jumped to 11.31 percent as gold prices reached a new high.
However, as prices softened towards the end of calendar 2020, and as other channels of credit opened up, demand for gold loans slowed down subsequently, he said.
Muthoot Finance, the largest gold loan NBFC with over 5,200 branches, expects over a 15 percent growth last year, said K R Bijimon, chief general manager. Around half its business comes from South India, with Tamil Nadu contributing the major share.
The average loan value has increased from Rs 40,000 to Rs 65,000, according to him. The COVID-19 crisis has raised demand from traders who increasingly depended on gold loans for easy finance. Muthoot Finance even launched a loan-at-home scheme for loans greater than Rs 10 lakh.The pandemic has turned out to be a blessing in disguise for the gold loan NBFCs as it enabled them to scale up digitisation efforts. “The digitisation in gold loan business has increased to around 30 percent,’’ Bijimon said. In fact, it has given the company better service bandwidth without having to open new branches.