Gold loan securitisation has seen healthy pickup post FY2019 driven by the growth in the gold loan book of NBFCs and very low delinquency levels that has increased investor appetite.
Gold loan securitisation volumes were about Rs 4,400 crores in H1 FY2022 (similar to volumes seen in H1 FY2021) forming 10 per cent of the overall domestic securitisation volumes as compared to 6 per cent seen in FY2020 (pre-Covid period).
During the Covid-19 pandemic, gold loans have been considered to be a safer asset class given the availability of a liquid collateral and rising gold prices. While direct assignment (DA) transactions have a dominant share, the share of PTCs in gold loan securitisation has been rising. Investors like HNIs and mutual funds have shown a higher appetite in investing in gold loan PTCs as compared to other asset classes.
According to ratings agency ICRA, the overall growth for gold loan NBFCs will remain robust in the near to medium term which would support healthy volumes of gold loan securitisation with its share in overall securitisation market being 8-10 per cent.
Says Abhishek Dafria, Vice-President and Group Head - Structured Finance Ratings at ICRA, "While gold loan securitisation had seen some slowdown post 2012 due to the removal of priority sector lending classification and introduction of minimum holding period (MHP) requirements for securitisation, the volumes have again picked up since FY2019. Lower delinquencies, liquid collateral and affinity for borrowers towards gold jewellery have ensured healthy investor appetite for gold loan securitisation."
"The loss-cum-90+ dpd in ICRA-rated pools (both live and matured) securitised during the period from June 2019 to June 2021 is very low at sub 0.4 per cent. During this period, there have been no rating downgrades in gold loan transactions nor has there been any loss to the investor after factoring in the credit enhancements in the structure, he said."
The low delinquencies in gold loans are also supported by the gold prices that have largely seen an upward trajectory in the last seven-year period. While there has been a moderation in gold prices in H2 FY2021 with around 10 per cent decline in gold prices over the peak of August 2021, the decline has been moderated in YTD FY2022.
Gold loan NBFCs have reported low gross net performing assets (GNPAs) since FY2018. While NBFCs resort to gold loan auctions for NPA accounts, the share of auction contracts as a share of assets under management (AUM) has also been low. Further the loss on auction is low since the loans are given at a loan-to-value (LTV) ratio of 75 per cent which acts as a mitigant even when gold prices were to decline, though the timeliness of the auction process would remain important.
Adds Gaurav Mashalkar, Assistant Vice-President and Sector Head, ICRA, "ICRA has rated 25 gold loan PTC transactions since June 2019 and the performance of these transactions has been healthy. The rated PTCs predominantly follow a timely interest and ultimate principal structure so that a temporary drop in collections, as seen during the lockdown period, would not result in any default on the structure. While turbo structures are prevalent in ICRA-rated pools ensuring accelerated amortisation of PTCs, high prepayments have also ensured that behavioural tenure of rated pools is predominantly between 7-9 months."