Despite intense competition from banks in the gold loan business, the Non-banking financial companies (NBFCs) have maintained a reasonably resilient market share.
The support from strong capitalisation, sharp focus on risk management and healthy profitability has meant their credit profiles continue to be stable, said CRISIL Ratings.
It further highlighted that the growth in the assets under management (AUM) of gold-loan NBFCs has been driven by three factors: ability to hold on to their customers — as evinced in a steady base; focus on small and mid-size loans; and increasing reach by expanding branch networks.
These trends have meant the market share of gold-loan NBFCs has been resilient at over 60% between March 2021 to September 2023.
NBFCs’ servicing agility, banks’ focus on borrowers
While NBFCs are known for their servicing agility, banks have focused on borrowers seeking bigger loans and competitive interest rates.
On their part, banks have sharpened focus on non-agricultural gold loans for personal use, particularly in the Rs 3 lakh and above ticket sizes, over the past 3 years. On the other hand, NBFCs have adopted steps to sustain growth rate and market share. In the first half of this fiscal, NBFCs matched banks by growing at ~10-11% (non-annualised).
Growth for gold-loan NBFCs remains highly influenced by change in the prices of the precious metal. In fiscal 2023, gold prices rose nearly 10%, with loan books rising in tandem, supported by bigger ticket sizes. Similar was the trend in this fiscal first half, with prices rising nearly 13% while AUM of gold-loan NBFCs grew nearly 10% sequentially.
Speaking on the development, Malvika Bhotika, Director, CRISIL Ratings, said, “Gold-loan NBFCs have bolstered clientele and managed growth by opening branches in new geographies, offering online gold loans and door-step services, and deploying marketing strategies to target inactive customers.”
Timely auctions kept the credit cost in check
CRISIL Ratings highlighted that from an asset quality perspective, holding timely auctions has kept the credit cost, the apt gauge of gold-loan asset quality, in check, at 0.2-0.4% historically.
Last fiscal, the credit cost was ~0.3%. The discipline on loan-to-value (LTV) and auctions remains high as gold-loan NBFCs maintain sharp focus on risk management.
Also, the average portfolio LTV has remained range-bound at 65-70% over the years. In terms of lending yields, there has been on an uptrend over the past two quarters.
Yields had fallen in fiscal 2022 and the first half of fiscal 2023 as NBFCs looked to attract new customers with competitive pricing.
However, with leading players largely discontinuing these schemes, yields have inched up again.
CRISIL also highlighted that the lending spreads will continue to be over 10%, backed by the ability to pass on the rate increases to customers. And profitability, as measured by return on managed assets, is expected to remain comfortable in the range of 3.5-5% for large gold-loan NBFCs.
Umesh Mohanan, Executive Director and CEO, Indel Money said, “Gold loan NBFCs have increased their market share by launching tailor-made products, branding and physical branch expansion. They branded and promoted gold loan as a viable loan option, which was considered inauspicious in rural communities till sometime ago due to the precious metal’s emotional value, by ensuring enhanced safety and security to the collateral gold.”
“This turnaround helped NBFCs attract more customers into their fold. Further, the gold loan NBFCs have developed innovative ways to dig deep into the market. They offered accurate valuation, maximum loan amount, top-up loan facility, and simpler and hassle-free loan processing using technology. Most of them introduced user-friendly mobile apps and hybrid gold loan models to ensure superior customer experience,” he added.
Rohan Juneja, MD & CEO Trucap Finance Limited, said, “The agility, personalized service, and quick turnaround times offered by gold-loan NBFCs continue to resonate with customers, underlining their resilience in a competitive landscape. This steadfast customer loyalty highlights the unique value proposition that gold-loan NBFCs bring to borrowers, solidifying their position in the market.”
