 "gold loans")
The share of small-ticket gold loans below ₹2.5 lakh are set for a substantial rise in total assets under management (AUM) of lenders as the Reserve Bank of India (RBI) has hiked loan-to-value (LTV) norms in the category, said industry experts.
Owing to the LTV hike (relaxation), lenders will have the flexibility to give more small-ticket loans, mainly to rural people.
“There is a sizable amount of gold loans below ₹2.5 lakh. Therefore, these relaxations will give more flexibility to them to lend more,” said AM Karthik, co-group head, financial sector ratings, ICRA.
The RBI, on Friday, released final guidelines on gold loans in which it increased LTV norms to 85 per cent from 75 per cent.
“About 30-40 per cent of the AUM is above ₹2.5 lakh. This relaxation will lead to a major reshuffle in our AUM as the inclination towards small ticket-size loans will automatically go up in the coming quarters.,” said a senior executive at a gold loan non-banking financial company (NBFC).
The non-banking financial company-micro finance institution (NBFC-MFI) category also received regulatory support with the RBI relaxing the qualifying asset threshold for NBFC-MFIs from 75 per cent to 60 per cent. It implies that NBFC-MFIs have to maintain a minimum of 60 per cent of their total assets as qualifying assets, which are microfinance loans, on an ongoing basis.
The latter will help NBFC-MFIs to increase the share of non-MFI to 40 per cent (from 25 per cent earlier), IIFL Capital said in a note.
However, stress in the microfinance sector is likely to persist for the first two quarters, said industry experts.
With better collection and recoveries, stress in the MFI segment is expected to subside from September.
At the same time, NBFCs are likely to stay conservative in lending towards the unsecured segment. They would focus on building secured books, comprising loans against property and gold loans.
“For some time, both banks and NBFCs will cherry pick on unsecured and MFIs. The immediate focus will continue to be on secured loans. Once collections pick up, lending to MFIs will also pick up. It’s good for the rural economy that the monsoon is early as it will help in boosting agriculture and improve repayment ability. Consequently, collections will go up,” Karthik added.
In the June review of the monetary policy, RBI had reduced the policy repo rate by 50 bps and cut banks’ cash reserve ratio (CRR) requirement by 100 bps to 3 per cent. The move augers well for the NBFC sector as the CRR cut will release ₹2.5 trillion for banks.
“The CRR cut will release over 2 trillion for banks. This, coupled with a good monsoon and lower interest rates, augurs well for rural consumption and is positive for mortgages,” said Gaurav Gupta, founder, managing director (MD) and chief executive officer (CEO), Tyger Capital.
Analysts said that with the early onset of monsoon, NBFCs are likely to see better collections and recoveries, especially in rural areas where most of the MFI loans are concentrated.
“With an early arrival of monsoon, cash flow in the rural economy is going to improve and this will in turn improve collections for us. With good Kharif and Rabi crops, the rural economy is likely to perform better. We are expecting collection and recoveries to get back to 99.9 per cent, They fell due in the preceding quarters due to heat waves,” said a senior NBFC official.
As a result of the steep rate cut of 50 bps in the last monetary policy meeting, cost of funds is expected to fall and margins may improve, increasing the overall profitability of the sector.
