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Gold loan assets of NBFCs expected to grow at 15-18% in current fiscal

The demand, especially from individuals for meeting urgent personal requirements and from micro enterprises for working capital to restart businesses, would propel gold loan growth

Topics
gold loans | NBFCs | Lockdown

Abhijit Lele  |  Mumbai 

Photo: Reuters
Gold loans would be preferred as non-banking financial companies (NBFCs) and banks have tightened their underwriting norms for other loans.|Photo: Reuters

As economic activity revives after the gradual lifting of the lockdown, the demand for is expected to rise. The gold loan assets of companies in country are estimated to grow by 15-18 per cent in current financial year, according to

The demand, especially from individuals for meeting urgent personal requirements and from micro enterprises for working capital to restart businesses, would propel gold loan growth.

would be preferred as non-banking financial companies (NBFCs) and have tightened their underwriting norms for other loans. Also, higher average gold prices mean gold-loan assets under management of could grow 15-18% this fiscal.

Growth was flat in the first quarter of this fiscal because of low disbursements in April and May due to the country-wide Preliminary estimates indicate that gold loan disbursements, including re-pledge, at have more than doubled sequentially in the second quarter of this fiscal, said Krishnan Sitaraman, senior director, Ratings.

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Unlike other asset classes, gold loan has not faced any major issues in collection and disbursement, or re-pledge of loans, barring the stringent phase in April and May.

With many facing collection challenges and a likely increase in delinquencies, fresh disbursements, especially to the MSME and unsecured loan segments, have remained low. Consequently, gold-loan financiers are expected to benefit, he said.

The analysis of gold loan NBFCs shows that for a typical 12-month loan product, 60-65% of the loan is foreclosed within the first six months. The short tenure of most gold loans, the part-foreclosure option and associated rebates offered by NBFCs make them a convenient choice.

To provide a smooth re-pledging process in times of pandemic, larger NBFCs are offering online renewal since the underlying collateral – gold in various forms – is already in their possession, rating agency added.

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First Published: Wed, October 28 2020. 16:45 IST
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