New loan market opened with Gold Loan
Pledging gold has traditionally been glower upon. Only those in terrible need would go to the moneylender or the local jeweller, get stiff terms for the loan, and yet have no other choice but to settle for it. Socially, vow gold signified a fall in one’s status. But all that is fast changing with the upper middle class also opting for this ‘loan of convenience’. The uncertainty in real estate and equity markets has made gold an attractive investment and that, in turn, is making gold loans a convenient option.
Industry pegs the amount of gold in Indian households at close to 20,000 ton, of which less than 1% has been monetized by the organized sector. Most gold loan companies boast of a year-on-year growth of over 80% in their loan books, with a growing percentage of the demand coming from places beyond south India, where gold loans have been popular. The gold loan market in the North, which is less than a decade old for most of these companies, already has an over 20% share of the industry.
“Gold loans up till now had been a monopoly of the South. But today, we have branches in north which have lent huge amounts of gold, even surpassing some of them in the south,” said Muthoot Finance, among the largest players in this business with 3,400 branches across the country. The company, on a drive to increase its footprint across India, says it would not be long before it has a matching presence in the North, compared to 2,100 branches in the South. The company’s assets under management were estimated at Rs 22,000 crore in November, compared to Rs 20,800 crore in September.
Manappuram Finance, another prominent player in this business, reported similar growth with AUMs of Rs 10,500 crore at the end of September, from Rs 9,000 in June. “Growth has been great in the past five years because of the rising gold prices. People hedge themselves against risks by way of gold loans. In case of any commodity, when prices go up, demand falls. In case of gold, it is the opposite. The demand for gold loans has led to a growing number of banks and NBFCs vying for a share of the pie. The gold loan portfolio of private bank HDFC has grown 10-fold in the last three years and doubled since February 2011. “Our business growth in gold loans has been growing in the short term as well as over a longer period. We continue to view this as a smart borrowing option for customers,” said HDFC Bank.
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ICICI Bank too has seen significant growth in its gold loan portfolio. The bank, which currently offers up to 75% of the value of gold as loan, will very soon appraise the limit, an ICICI.
Although the rate of borrowing from banks for these companies have gone up after the RBI removed the priority lending status for gold loans, this has hardly impacted its demand, companies said.
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