In June 2024, gross non-banking finance companies of gold loan bonded a robust growth rate while RBI put certain constraints on the cash payment recently, observed a report of CRISIL Ratings. The report underscores the fact that the sustained demand for gold loans has resulted from favorable gold price movements as well as the practice of sound risk management by these NBFCs, which has enabled them to manage recent oscillations in the price of gold.
Ajit Velonie of CRISIL Ratings said that went up further, “Data suggests that gold loan disbursal during June 2024 was around 12 percent higher than the average monthly disbursal of the previous quarter for the overall industry while excluding one large NBFC, the growth rate was as high as 23 percent.
NBFCs in the gold loan segment have adopted the RBI instruction regarding restriction on cash disbursal for loans above Rs 20,000 without any issues regarding digital disbursal modes. The RBI where it had set a May 2024 deadline has said that gold loans of more than Rs 20,000 must be transferred through banking channels like NEFT, RTGS, or UPI. Nevertheless, this change has marginally affected the TAT, but NBFCs have continued to sustain their dominance over conventional usance banks as deemed by CRISIL.
But at the same time, the report also notes that a sharp and sustained fall in the price of gold could be the risk that can impact these NBFCs. To avoid such risks, NBFCs will have to ensure that they maintain healthy loan-to-value (LTV) levels and sell the collateral as and when required.
Observing the effect of the decrease in the price of gold and cut in the customs duty on gold declared in the current union budget for the financial year, Malvika Bhotika, Director, of CRISIL Ratings stated that it has not compelled the gold loan NBFCs. Explaining the factors that have helped NBFCs to overcome the lower gold prices, Bhotika said, “On one hand, as per the data of CRISIL Ratings, the portfolio LTV ratio of these NBFCs was estimated at a fairly low level of 60-65 percent on a mark to market basis as on June 30, 2024, which provided a safety net against adverse movements in the gold prices.
Therefore, gold loans continue to enjoy a steady demand and NBFCs have been capable of addressing legal alterations and probable risks regarding the volatility of gold prices. These companies are also well placed to maintain growth in the market as it unfolds to the next level of challenges.
