IGI Logo

India Ratings and Research in its latest report has said that facing intense competition from banks, gold  loan Non-Banking Financial Companies (NBFCs) are likely to adopt aggressive strategies to maintain and expand their gold loan franchise. It mentioned many banks, both private and public, have become fairly active in the gold loan space, enticed by high yield and liquid security. For example, gold loan portfolio across banks has jumped by more than 89 per cent year-on-year to Rs 60,700 crore in FY21 and Rs 70,900 crore in the first nine months of FY22.

Further, it said the gold loan auctions by NBFCs rose in April-December period of FY22, perhaps the highest since FY14 when gold saw larger volatility in its prices. NBFCs offering gold loans faced higher auction pressures in the first nine months of FY22, largely due to the COVID-19 impact on borrowers' cash flows and gold price correcting by around 10 per cent during mid-June to September 30, 2021.

It stated ‘We believe that auctions by gold loan NBFCs would normalise in the fourth quarter of FY22 as gold prices have stabilised since October 2021, after periods of corrections seen since December 2020, along with normalcy returning in business activities.’ Besides, it said while NBFCs have seen a sharp rise in loan auctions, the situation at banks have been less intensive as the regulations ensure that the Loan-To-Value (LTV) ratio remains lower throughout the tenor of the loans, increasing the incentive for borrowers to arrange for the redemption of gold loans from lenders.