With stable bottomlines and stronger balance sheets, but limited room for expansion, larger gold loan companies are diversifying into newer areas to maintain growth momentum. The diversification by these non-banking finance lenders have been either through acquisitions or by direct lending. “With moderate growth in gold loan portfolio and availability of capital cushion, gold loan NBFCs have started looking at diversification into other asset classes such as microfinance, SME finance, affordable housing,” says Care Ratings in a weekend report. Huge customer database, operating systems and established brand names are giving these companies some comfort in diversifying their portfolios. The largest gold loan player, Muthoot Finance, with assets under management of Rs 27,608 crore, and Manappuram Finance, with an AUM of Rs 11,432 crore as of September 2017, have diversified through acquisitions and entered new asset classes.
Manappuram Finance, which entered the microfinance space by acquiring Asirvad Microfinance in February 2015, and home loans by acquiring Milestone Housing Company (now Manappuram Home Finance) in February 2014, since then also entered the loan against property and vehicle finance segments in FY15. Muthoot Finance, on the other hand, acquired Belstar Investment & Finance in May 2016 and now has its presence in housing finance through its subsidiary Muthoot Homefin. The report says with strong balance sheets but limited opportunity to grow the flagship gold loan portfolio, gold loan players are expected to grow their balance sheet size with diversification int0 non-gold products going ahead.
These entities are also expected to focus on increasing geographical diversification. “With significant experience of the workforce solely in collateral (gold jewelry) based lending, alignment of people and the processes to cash flow-based lending remains critical to achieve healthy growth while maintaining the quality of the portfolio,” the report says. It further says gold loan players are likely to witness moderate growth in near future on account of higher penetration in the South and slower addition of branches in non-Southern region. “Growth in their AUMs is likely to be moderate and is likely to be conditioned by gold prices,” it warns.
The credit risk profile of larger gold loan NBFCs is likely to remain stable due to stronger balance sheets and various risk mitigation strategies adopted by these companies in the past few years. The report says profitability of small gold loan players is likely to remain moderate at the current levels in view of high competition.