The market share of gold-loan NBFCs (non-banking financial companies) has seen a steady growth despite competition from banks due to strong capitalisation, sharp focus on risk management and healthy profitability, as per a recent report by credit rating agency, CRISIL.
The growth in the assets under management (AUM) of gold-loan NBFCs has been mainly driven by factors such as their ability to hold on to their customers — as evinced in a steady base; focus on small and mid-size loans; and increasing reach by expanding branch networks.
As per CRISIL, the market share of gold-loan NBFCs has been resilient at over 60 per cent between March 2021 and September 2023. The report points out that NBFCs are known for their servicing agility while banks have focused on borrowers seeking bigger loans and competitive interest rates.
On their part, banks have sharpened focus on non-agricultural gold loans for personal use, particularly in the Rs 3 lakh and above ticket sizes, over the past three years. On the other hand, NBFCs have adopted steps to sustain growth rate and market share. In the first half of this fiscal, NBFCs matched banks by growing at 10-11 per cent (non-annualised).
“Gold-loan NBFCs have bolstered clientele and managed growth by opening branches in new geographies, offering online gold loans and door-step services, and deploying marketing strategies to target inactive customers.” said Malvika Bhotika, Director, CRISIL Ratings.
As per CRISIL, the growth of gold-loan NBFCs remains highly influenced by change in the prices of the precious metal. In fiscal 2023, gold prices rose 10 per cent, with loan books rising in tandem, supported by bigger ticket sizes. Similar was the trend in the first half of this fiscal with prices rising 13 per cent while AUM of gold-loan NBFCs grew 10 per cent sequentially.
“The CRISIL report further points out that from an asset quality perspective, holding timely auctions has kept the credit cost — an apt gauge of gold-loan asset quality — in check, at 0.2-0.4 percent historically (including in the pandemic-impacted fiscal 2022). Last fiscal, the credit cost was ~0.3 percent,” read the report.
The discipline on loan-to-value (LTV) and auctions remains high as gold-loan NBFCs maintain sharp focus on risk management. Average portfolio LTV has remained range-bound at 65-70 per cent over the years.
In terms of lending yields, there has been an uptrend over the past two quarters. Yields had fallen in fiscal 2022 and the first half of fiscal 2023 as NBFCs looked to attract new customers with competitive pricing. However, with leading players largely discontinuing these schemes, yields have inched up again. Experts at CRISIL observe that the lending spreads will continue to be over 10 per cent, backed by the ability to pass on the rate increases to customers. And profitability, as measured by return on managed assets, is expected to remain comfortable in the range of 3.5-5 per cent for large gold-loan NBFCs.
Prashant Mane, Associate Director, CRISIL Ratings said, “The healthy profitability, leading to robust internal accrual, will continue to support growth without the need for any external equity infusion. Consequently, gearing levels are expected to remain comfortable at less than 3 times over the medium term.”