Gold-loan NBFCs maintain resilient market share at 60% between Mar 2021 to Sep 2023 despite bank competition

Gold-loan NBFCs maintain resilient market share at 60% between Mar 2021 to Sep 2023 despite bank competition

Non-banking financial companies (NBFCs) focusing on gold loans have maintained a reasonably resilient market share despite intense competition from banks, said a report by CRISIL Ratings. That, and support from strong capitalisation, sharp focus on risk management and healthy profitability has meant their credit profiles continue to be stable.

Per the report, growth in the assets under management (AUM) of gold-loan NBFCs has been driven by three factors: ability to hold on to their customers — as evinced in a steady base; focus on small and mid-size loans; and increasing reach by expanding branch networks.

On their part, banks have sharpened focus on non-agricultural gold loans for personal use, particularly in the Rs 3 lakh and above ticket sizes, over the past 3 years. On the other hand, NBFCs have adopted steps to sustain growth rate and market share. In the first half of this fiscal, NBFCs matched banks by growing at ~10-11 per cent (non-annualised).

“Gold-loan NBFCs have bolstered clientele and managed growth by opening branches in new geographies, offering online gold loans and door-step services, and deploying marketing strategies to target inactive customers,” said Malvika Bhotika, Director, CRISIL Ratings.

Growth for gold-loan NBFCs remains highly influenced by change in the prices of the precious metal. Gold prices rose by ~10 per cent in fiscal 2023, with loan books rising in tandem, supported by bigger ticket sizes. Similar was the trend in this fiscal first half, with prices rising ~13 per cent while AUM of gold-loan NBFCs grew ~10 per cent sequentially.

“From an asset quality perspective, holding timely auctions has kept the credit cost — the apt gauge of gold-loan asset quality — in check, at 0.2-0.4 er cent historically (including in the pandemic-impacted fiscal 2022). Last fiscal, the credit cost was ~0.3 per cent,” it said.

The discipline on loan-to-value (LTV) and auctions remains high as gold-loan NBFCs maintain sharp focus on risk management. Average portfolio LTV has remained range-bound at 65-70 per cent over the years.

In terms of lending yields, CRISIL said, there has been an uptrend over the past two quarters. Yields had fallen in fiscal 2022 and the first half of fiscal 2023 as NBFCs looked to attract new customers with competitive pricing. However, with leading players largely discontinuing these schemes, yields have inched up again.

Lending spreads will continue to be over 10 per cent, backed by the ability to pass on the rate increases to customers. And profitability, as measured by return on managed assets, is expected to remain comfortable in the range of 3.5-5 per cent for large gold-loan NBFCs.

“The healthy profitability, leading to robust internal accrual, will continue to support growth without the need for any external equity infusion. Consequently, gearing levels are expected to remain comfortable at less than 3 times over the medium term,” said Prashant Mane, Associate Director, CRISIL Ratings.