India’s organised gold loan industry could touch Rs 3,101 billion by 2019-20 as the companies are offering flexible schemes at lower interest rates with minimal paperwork without the hassles of rigid credit appraisal, said a KPMG report released today. Gold loan companies are expected to continue delinking the gold price volatility risk by offering more variants of lower tenure loan products, it said. The report also suggested a ‘centralised gold locker unit’ that would eliminate the need for operating branch to have its own vault, conduct appraisal processes and store gold while also doubling as a gold locker facility for customers. Gold loan in the country is offered both by formal (banks, NBFCs and cooperatives) and informal sector (pawnbrokers and local moneylenders). According to the KPMG report, the organised gold loan industry is expected to grow from Rs 2,139 billion in 2016-17 fiscal to Rs 3,101 billion in 2019-20. Banks and NBFCs offer gold loans at interest rates much lower than those of informal moneylenders. NBFCs charge 18-24 per cent interest per annum on gold loans, banks at 12-15 per cent and moneylenders at 25-50 per cent per annum, it added. “The relative ease in obtaining a loan approval has boosted the popularity of gold loans,” the report said. Since gold loans are fully securitised, lenders have the option to recoup the full principal amount if the borrower defaults – hence, there is no need for extensive checks on borrower’s previous repayment records, it said.
Higher growth is also expected because there is change in attitude towards applying for gold loans, besides more scope in untapped markets of west and north India which together hold almost 45 per cent of the gold. There will be more demand for gold loans as they are available in extremely flexible terms with higher return on assets, it added. The report also observed that the increased competition from Small Finance Banks (SFBs) reduce the yield and players should invest in technology to automate the process. Going forward, the report said the true success of the gold loan industry lies in all stakeholders coming together to create an unified platform by technology, digital operations, and focused network strategy.
It suggested a model called ‘centralised gold locker unit’ where one can securely park gold and obtain a secure digitised gold certificate post appraisal. This model will reduce the cost of storage and operations. It will lead to unified gold appraisal and lower locker facility charges, it added. India is one of the largest consumers of gold with an estimated total stock of over 23,000 tonnes in 2016, as per a WGC data.