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Gold-loan NBFCs prefer epayments

Monday, November 28, 2016
Economic Times
Gold-loan NBFCs, such as Manappuram Finance and Muthoot Fincorp, which have registered a 40-50% decline in business since demonetisation was announced on November 8, are now encouraging their customers to use net banking, debit cards and e-wallets for repayments.

VP Nandakumar, managing director, Manappuram Finance, said: "There is no denying that demonetisation has caused a shortage of cash in the market. Some customers faced problems in making repayments because we stopped accepting old notes. We are encouraging them to pay using online tools. We started accepting repayments by cheque."

However, Nandakumar said he is hopeful that demonetisation will eventually benefit gold-loan NBFCs the most because the cash crunch will lead to a shift in business from unorganised players to the organised ones.

"After demonetisation, banks are flushed with CASA (current account, savings account) funds, and they have already lowered deposit rates. It won't be long before lending rates also come down, and that will be another major positive gold-loan NBFCs," he said.

The diminished role of cash in business will also lower operating expenses. Thomas George Muthoot, director, Muthoot Fincorp, said they were asking customers to remit money directly into their account.

"Just after demonetisation was announced, disbursal dropped by 60%. Now, it has improved and is currently hovering around 40-50%," he said. According to Nandakumar, demonetisation has affected only 50% of their business. "Even before demonetisation, about 50% of our total disbursements was through NEFT because as per rules, disbursements above Rs 1 lakh have to be made through a bank account.

For loans of smaller amounts, where customers are keen to get it in cash, there has been an impact because of constrained supply of new notes. When supply eases, we expect things to get back to normal," the Manappuram chief said.

Manappuram Finance and Muthoot Fincorp had earlier said the country's gold loan business, or lending against gold, could grow by 10-20% from last fiscal as a period of steady increase in gold price without excessive volatility portends well for the industry.