Gold represents a large proportion of Indian household wealth and this asset was useful during the period of financial stress caused by the pandemic. Gold loan demand was strong in the last fiscal year and the trend also continued into 2021-22.

The demand for gold loans from small businesses and individuals — to finance working capital and personal requirements, respectively — has increased with the pickup in economic activity and the onset of the holiday season, which coincides with the easing of lockdown restrictions by several countries, Kreisel said in a recent note.

Loans against the gold jewelery portfolio of scheduled commercial banks increased by 59.1 per cent to Rs 63,770 crore on September 24, 2021 from Rs 40,086 crore in September 2020, according to the data of the Reserve Bank of India. SCBs LAGJ’s portfolio reached ₹28,163 crore on September 27, 2019.

Q2 . Payments

Banks’ results in the second quarter revealed continued demand for gold loans, while non-bank finance companies focusing on gold loans also said that there is a strong demand for these loans.

We remain optimistic about gold loans. “YTD gold loans increased by 26 percent and we expect 25-30 percent growth for gold loans in this fiscal year,” said Shyam Srinivasan, managing director and CEO of the Fed after the second quarter results.

Gold loan payments from the private sector rose to INR 15,976 crore in the quarter ended September 30, 2021.

CSB also announced a 10.3 percent year-over-year increase in gold loans for the second quarter of the fiscal year.

Second-quarter results from two gold-focused NBFCs — Muthoot Finance and Manappuram Finance — are likely to shed more light on this trend, but analysts said they likely saw healthy growth.

“We expect healthy growth in the gold loan portfolio of Manappuram Finance and Muthoot Finance due to the various attractive interest schemes offered by these gold financiers to attract high volume gold loan clients. Given the stability of gold prices, we expect gold financiers to offer some deferment to clients (particularly those who continue in paying the interest element) for repayment rather than rushing to auction gold.”

IIFL Finance also reported a 19% year-on-year growth in its AUM Gold Loans to ₹13,600 crore as of September 30, 2021.

Will growth continue?

Umesh Mohanan, CEO and CEO of Indel Money noted that the economy is getting back on track, but a large number of sectors remain severely affected.

“People trying to reopen or restart their business need urgent cash, and for this gold loan it is a convenient and quick option that does not require a credit check. Gold has in fact become an alternative capital option,” he said.

Indel Money reported 25 percent year-over-year growth in gold loans and expects continued demand. The average loan card size is Rs 75,000-85,000 and the average loan term is one year.

Experts note that small business owners, many of whom have taken the decision to freeze or restructure, may now find it difficult to obtain a loan from the bank.

In this case, gold loans prove to be a beneficial option.

VP Nandakumar, Managing Director and CEO of Manappuram Finance, said, “With the unregulated sector back on its feet, we expect improved growth in gold lending, microfinance, as well as our other business sectors.”

Assets under management (AUM) of non-bank financial firms (NBFCs), which lend primarily against gold, are expected to rise 18-20 per cent to Rs 1.3 crore this fiscal year, according to Crisil’s forecast.

lead PSBs

According to a recent report by ICICI Securities, the regulated gold loan industry, including agricultural loans, has grown at the strongest pace since 2018-2019, with growth of close to 31 percent in 2020-2021 due to the cautious stance taken by finance. Institutes in other loan products due to the pandemic-hit economy and high gold prices.

Public sector banks accounted for the largest market share in the regulated gold loan industry (excluding agricultural loans) at about 44 percent in 2017-2018, compared to 34 percent of non-bank specialized companies and 12 percent of private sector banks.

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

“If the share of banks versus non-profit companies in the regulated gold loan industry including agricultural loans is observed, it is estimated that the share of banks has increased in the 2020-21 financial year on the back of an increase in permanent value, loan to value or risk aversion by banks in other loan products,” she noted.

However, the operationally intensive nature of the business, the existing well-distributed infrastructure across India and a solid client base provide strong business moats for specialized non-bank financial firms.

Online gold loans are catching up now.

The Fed said in its investor presentation that payments through financial technology have enabled gold and micro-lending platforms over ₹ 3,800 crore.

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

Gold prices and payment

Experts note that gold prices were stable, which led to lower rates of delinquency among borrowers and helped non-bank financial companies to perform better than banks in this area.

The authority said: “While there was moderation in gold prices in the second half of fiscal year 21 with a decrease of about 10 percent in gold prices from the peak of August 2021, the decline was moderate in the year until the date of 2021-22,” adding that it had notified non-governmental companies. Banking for gold loans reported a decrease in total net assets with performance since the 2017-2018 fiscal year.

Many non-bank financial firms are also recasting the typical one-year term of gold loans into shorter terms of three months or six months.

Gold loan auctions, which saw a boom earlier this year, are also likely to return to normal as economic conditions improve.

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