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Budget 2020: NBFCs offering gold loans can meet part of unmet credit demand, boost growth; here's how

Wednesday, January 22, 2020


·         Gold loans extended to agrarian borrowers by the banks enjoy the priority sector lending (PSL) status, no such benefit is available to NBFCs

·         Gold loans provided by NBFCs should get equal and fair treatment at par with the banks

·         It is time that gold loan NBFCs got its due share of support from the policymaking establishment

In the forthcoming Budget, finance minister Nirmala Sitharaman will be required to address several challenges, but the highest priority should go towards reviving growth.

Keeping aside the debate of structural versus cyclical slow-down, the economy has slowed down sharply over the past few quarters, amid challenges in the banking and NBFC sectors, low demand and job losses. While the bigger players have not faced the brunt of the credit squeeze, the situation for the smaller players is dire.

Banks are flush with money yet unwilling to take a risk and lend to smaller businesses, especially to MSMEs, traders, shopkeepers, etc., the strata most vulnerable to liquidity stress. While the big borrowers were able to approach the global markets, the smaller businesses have suffered. The recent surge in international borrowings by an increasing number of established players suggests that despite the vast liquidity infused into the economy by Reserve Bank of India (RBI), banks aren’t willing to loosen their purse strings yet.

In times like these, when entrepreneurs are starving for credit from Banks, the finance minister should do everything possible to enable NBFCs to step up their lending to marginal borrowers.

Here are a few suggestions that would facilitate NBFCs, especially gold loan lenders, to fulfil at least a part of the sizeable unmet credit demand and thus do their bit to revive economic growth:

Gold loans are mainly used by people in rural or semi-urban areas, who borrow by pledging their used household jewellery as they don’t have access to any other forms of institutional credit. Gold loans are typically microloans of less than Rs 50,000 ticket size. In this context, the present regulatory dispensation is discriminatory towards NBFCs, as banks are given preferential treatment.

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