Gold loans shed regional tag, go pan-India

Kolkata: The yellow metal’s lustre has caused a noticeable shift in the centre of gravity for bullion-based lending.

A traditional bailiwick for South India-based companies, gold loans are fast becoming a booming pan-Indian business, underpinned in no small measure by the surge in the value of the underlying after gold reached lifetime highs globally.

Aditya Birla Capital, Capital Small Finance Bank, Piramal Finance and a handful of microfinance companies in the north and east are now exploring this market, as the rise in the value of the underlying boost both ticket sizes and the addressable market, bringing hundreds of thousands of potential borrowers within the fold of formal credit.

“We plan to launch gold loans for our customers by the end of this financial year. Gold Loans are a natural next step in our journey of serving credit needs of Bharat customers,” Jairam Sridharan, MD & CEO, Piramal Finance, told ET.

“A large part of our customer base – small business owners, self-employed individuals, and households in tier 2 and 3 cities – typically own two key assets: their home or shop, and gold. For many, gold is their first gateway to formal credit,” he said.

Gold loan growth surged 115% to ₹3.16 lakh crore at the end of the last September 19, which was the last reporting Friday of the month, over the same time last year, according to latest Reserve Bank of India data. The taboo against taking a gold loan, which was once significant in Indian society, is fast diminishing. The growth print was recorded at 51% the same time last year. “Today, borrowers do not feel shy. If they need a gold loan, they approach the lenders without any hesitation. We can see an opportunity here. So we’ll explore it fully,” Capital Small Finance Bank managing director Sarvjit Singh Samra told ET. The rise in price of the yellow metal has also contributed to the growth in value of gold loans, experts said. Gold has risen nearly 50% in India over the past year, outpacing largely flat equities.

“We offer gold loans in some of our branches while we had never pushed the product. But now we see that many south based NBFCs are penetrating the northern markets. So, it’s always better that we fine tune the product and start pushing it to fulfil the requirements of our customer segment,” Samra said.

With the Reserve Bank of India easing the qualifying assets criteria for microfinance companies, several of them are exploring a foray into the gold loan segment to raise the share of their secured book. Arohan Financial Services is actively exploring foraying into gold loans while Uttrayan Financial Services has opened a half-dozen gold loan branches in the last four months or so.

Gold loans carry little risk as these are backed by jewelleries. However, foraying into the gold loan business needs a specialised eco-system of valuing the gold and storing them securely as well as risk strategies.

RBI mandates lenders to offer loans up to 75% of the value of the jewelleries pledged as a guard against fluctuation of prices. After racing to fresh highs in mid-October, gold has slipped into a correction. On Multi Commodity Exchange of India, gold eased from around ₹1.32 lakh per 10g at the peak to the ₹1.19-1.22 lakh range at recent lows, Bajaj Finserv Asset Management Company said in a report. “The setback appears more like positioning and sentiment rebalancing than a shift in long-term fundamentals,” it said.