Spike in gold loans could not enthuse individuals to pledge household gold with gold loan NBFC

Tuesday, June 16, 2020
Economic Times

 
Despite a spike in gold loans in April and May, the economic uncertainty created by the outbreak of Covid-19 and the 70-day lockdown have not enthused small businesses and individuals to pledge household gold with the gold loan non-banking finance companies (NBFC) for quick money.

Gold loan is mostly taken by small businesses and SME sector. Though gold loan NBFCs saw an initial surge in loan offtake when branches reopened after six weeks of lockdown, the momentum was not sustained.

In April and May the increase in business volumes came more from existing customers taking advantage of higher loan-to-value (LTV) due to a spike in gold prices to increase their borrowings against existing pledges. But absolute footfalls have not increased and acquisition of new customers has not picked up.

Besides, gold loan NBFCs are facing competition from the public sector banks who are giving working capital loans at 7.5%, though the NBFCs say banks take more time to process loan applications unlike NBFCs that much quicker in disbursing loans.
“The cost of funds for banks is much lower than for NBFCs, hence NBFCs cannot compete with them on interest rates. However, for the customer, what the gold loan NBFCs bring to the table is ease of process and availability of credit whenever and wherever it is needed. Besides, gold loans are typically small ticket loans that get repaid within two to three months, so the rate of interest cannot be the key differentiator,” said V.P. Nandakumar, MD and CEO, Manappuram Finance.

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