India's gold loan NBFCs target robust growth

NEW DELHI (Scrap Monster): The large scale gold loan Non-Banking Finance Companies (NBFCs) in India are reportedly targeting robust growth this year, mainly on account of exit of smaller players and drastic cut-down on gold lending by banks in the country.

The assets under the management of NBFC gold loan companies had witnessed significant erosion during 2012 and 2013. However, it registered 8% growth during 2014. According to Muthoot Group- the largest gold loan financing company in the country, the company’s market share had dropped from 20% to 17% over the past several years. However, it targets 20% growth in assets this year, through introduction of more popular schemes.

Recently, the company had reduced the interest rate on ‘Muthoot Advantage Loan’ from 18% to 17%. The company had also introduced a special scheme for women which carries interest rate as low as 12%. In addition to this, the company had also launched two new products. First one puts a cap of Rs 50,000 on loan amount. The loan-to-value (LTV) of this product is as low as 50%, but carries a low interest rate of 14%. The second product has no cap on the loan amount. But the interest rate and LTV are slightly higher at 16% and 60% respectively.

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In the meantime, some of the smaller players like Cholamandalam Investment and Finance Company, Magma Fincorp and Capital First have exited the business. According to Muthoot Group, the exit of smaller players has led to industry consolidation. Moreover, banks in the country have recently turned cautious on advancing gold loans, which also has benefitted the large NBFC players in the country.

The gold loan NBFCs also expressed their willingness to be part of the recently announced gold monetization scheme by the government. Presently, only banks are permitted to participate in the scheme. However, involvement of gold loan NBFCs with extensive branch network may likely maximize the reach of the scheme among Indian public. In addition, NBFCs’ rich expertise in gold appraisal systems is expected to reduce the hassles of gold purity testing procedures.