States of Kerala, Telangana, Tamil Nadu, Bihar, Maharashtra, and Punjab are more active in the gold loan market for raising funds, said CA Krishnan R, director & CEO of Unimoni Financial Services.
“Though our major customers are farmers who avail loans during harvest season and close the loan when the harvesting season is over. We also have customers from retail traders, salaried middle class, self-employed and micro enterprises. Individual consumers are increasingly opting for gold loans to meet their needs, i.e. education, weddings, and medical expenses. Small businesses too have been showing increased interest in gold loans, as a secure means of raising working capital,” Krishnan said.
He said that the upward trend in gold prices is also makes lenders’ portfolios safer because they can keep good loan-to-value ratios. Also, there has always been an affection for owning gold as part of our culture and coupled with increasing accessibility to gold loan services, sustains demand across diverse demographic segments. Additionally, going digital streamlines loan processes making them convenient besides reducing lenders’ operational costs while at it. All these reasons make India have a very strong gold loan market.
Rising gold price is definitely adding a momentum in gold loan business. Most of our customers want to unlock the maximum potential of their gold while they apply for a gold loan. Rising gold prices also allow existing gold loan borrowers to seek a top-up of the existing loans.
For lenders, their gold loan portfolio becomes more secure when the gold price goes up. They can maintain a better LTV ratio for their loans.
When the value of gold Increases, borrowers may be more inclined to use their gold assets as collateral for loans since they can access larger sum of money with the same gold. This can lead to an increase in demand for gold loan business.
The rising gold prices reduces the risk of default loans. Since the value of the collateral (gold ornaments) is higher than the loan outstanding, borrowers will be vigilant to repay and release the ornaments in time. It also reduces the cost of collection of loans, since the lenders need not go for strict recovery process like auction of gold etc.
The rise in gold prices usually corresponds to a higher average loan ticket size for a gold loan company. When the price of gold increases, customers frequently use their assets of higher value to obtain larger loan amounts. This trend is understandable, as borrowers aim to take benefit of the raised value of their collateral to fulfil their financial requirements. “We have noticed an increase in the average loan ticket size when there is a significant rise in the price of gold. In the last one-year Average ticket size has increased by 10-15%,” Krishnan said.
Unimoni is aiming to achieve Rs 1,000 crore loan book by FY 25. At present, it has 311 branches across India and we are planning to expand especially in the northern regions.
“We will be introducing sector-specific loan facilities such as those designed for agriculture, education or health among others which are unique in nature and address various customer segments requirements accordingly. We also plan on using more digital platforms when it comes to their gold loan services. We will be extending our reach through online systems like mobile apps for applying loans, repaying them or even topping up one’s account balance thereby making it easier and quicker for people who borrow money from us,” Krishnan added.
“We also have plans of making strategic partnerships with banks, microfinance institutions (MFIs) and government agencies too will be part of our collaborations. These linkages allow us leverage on the strengths of each partner involved thus giving us access into new markets while at the same time improving what we offer through joint ventures with them. Additionally, we will be providing doorstep services which implies that we send our mobile teams to assist client on boarding as well as disbursing loans and collecting gold. Therefore, we help by reaching people who may want credit facilities from us especially those living in remote areas,” he said.
