The outstanding organised gold loan is expected to grow to Rs 4 lakh crore in FY21 from Rs 3.4 lakh crore in FY 2020.
The gold jewellery kept as collateral against gold loan by top three gold loan NBFCs -- Muthoot Finance, Muthoot Fincorp, and Manappuram Finance -- totalled 298.8 tonnes at end of the last fiscal year.
The gold loan market in India can skyrocket due to improved technology in the current fiscal year 2020-21. The outstanding organised gold loan is expected to grow to Rs 4 lakh crore in FY21 from Rs 3.4 lakh crore in FY 2020, said a report by the World Gold Council. Demand for gold loans, both through banks and non-banking financial company (NBFC) has grown in response to the economic impact of the COVID-19 pandemic, the report added. Gold loan NBFCs have gained competitive strength in their fast gold loan processing and auctioning off gold jewellery which has not been reclaimed by consumers.
The research report showed that the gold jewellery kept as collateral against gold loan by top three gold loan NBFCs — Muthoot Finance, Muthoot Fincorp, and Manappuram Finance — totalled 298.8 tonnes at end of the last fiscal year. The combined gold holdings of these three NBFCs would rank in the top 20 gold reserves of central banks and supranational organisations, it added. Together with the gold jewellery kept as collateral, the outstanding gold loan NBFCs value have increased exponentially in the last decade from just Rs 11,530 crore in FY10 to Rs 76,000 crore in FY20, at CAGR of impressive 20.8 per cent.
The 28.8 per cent rally in the domestic gold price this year pushed the demand for gold loans. While the borrowers benefited from higher loan value for the same collateral, lenders benefited from lower loan-to-value (LTV) ratios on their existing loans and higher demand. The WGC report said that with a higher gold price and greater liquidity needs arising with the onset of Covid-19, it was believed that the pandemic would induce higher gold recycling from consumers.
However, consumers used their gold holdings as collateral to obtain their financing needs rather than outright selling. Also, the rural economy has performed strongly this year, reducing the need for distress selling. The demand for gold loans during the pandemic has been strong both through NBFCs and banks.
It is further recommended that after embracing the digital penetration by gold loan NBFCs, they can launch self-servicing kiosks in branches and public location and can launch the gold valuation machine. e-KYC, loan disbursement, and repayments using e-wallets and prepaid cards are other measures suggested for the growth of gold loan NBFCs.