Gold-loan NBFCs grow in India despite cash disbursement restriction
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Non-banking financial companies (NBFCs) focusing on gold loans are expected to see reasonable growth in disbursements this fiscal as demand for credit remains strong, a report showed on Friday.
A CRISIL Ratings analysis of gold-loan NBFCs found that growth for gold-loan NBFCs has also been supported by favourable movement in gold prices.
“Early evidence of growth momentum is seen in the disbursements for June, which were 12 per cent higher than the average monthly disbursements in the preceding quarter. Excluding one large player, the growth was even higher at 23 per cent,” said Ajit Velonie, Senior Director, CRISIL Ratings.
Their growth in the recent past has been underpinned by operational resilience, agility and adaptability to evolving regulations.
A key regulatory development this fiscal was the advisory in May that curbed cash disbursements.
The advisory from the Reserve Bank of India (RBI) to a few gold-loan NBFCs recommended adherence to the provisions of the Income Tax Act.
“That meant loans cannot be disbursed in cash in excess of Rs 20,000. Anything more has to be disbursed through the banking channels such as the National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS) or the Unified Payments Interface (UPI),” the report noted.
Malvika Bhotika, Director, CRISIL Ratings, said that NBFCs have been grappling with gold prices, which have declined after the reduction in customs duty announced in the full Union Budget for this fiscal.
Even so, the declining gold prices have not affected gold-loan NBFCs materially for two reasons.
“One, the portfolio loan-to-value (LTV) range for these NBFCs was low at 60-65 per cent (on mark-to-market basis) as on June 30, 2024, which provides adequate cushion to manage unfavourable movement in gold prices. Two, these NBFCs have typically focused on periodic interest collection, keeping LTV under check,” Bhotika explained.
Any sharp fall in gold prices and their sustenance at the lower level for long would bear watching, said the brokerage.
