KOLKATA: Covid-19 has forced a large number of people in India to take loans against their household gold more than once since May, according to gold loan non-banking finance companies (NBFCs), as the ongoing pandemic has brought in its wake severe financial distress.
As many as 80% of customers have taken loans against gold more than once in the past four months, said executives of gold loan NBFCs.
Nearly 25,000 tonnes of gold is believed to be stashed away in Indian households. Most people are staying away from selling household gold for ready cash and are instead generating cash by taking loans against that gold, said the executives.
The ticket size for loans has gone up 25-30% from the pre-Covid level, with some NBFCs witnessing 70% increase in monthly disbursals since May.
“Gold loans have been faring better than any other loan category in the market,” Muthoot Finance managing director George Alexander Muthoot told ET. “We have seen good demand across a spectrum of customers – be it from small shopkeepers and traders or entrepreneurs in SMEs (small and medium enterprises) needing swift working capital or individuals requiring quick funds for medical expenses and education fees of children. In fact, 80% of our customers are repeat customers.”
A Motilal Oswal Finance report said the pandemic has benefited gold financiers. “This is because customers whose cash flows were disrupted during the pandemic are looking to leverage their gold holdings,” it said. “With more than 80% of the business coming from repeat customers and loan to value (LTV) declining below 55%, there is significant headroom for growth. We do not see any major impact of the Reserve Bank of India’s allowance of a higher LTV cap of 90% to banks on growth of gold financing NBFCs.”
Umesh Mohanan, executive director of Indel Money said, “Despite LTV caps of 90% for banks, NBFCs offering LTV of 75% will continue to attract higher repeat customers than banks thanks to focused product offerings and customer-centricity.”
For instance, he said, Indel Money offers a special gold loan scheme under which customers with regular repayment track record can avail an additional pre-approved and unsecured loan worth 5% on the average transaction value. “Our longer tenure gold loans for individuals, MSMEs and small traders, which we launched during the post-pandemic phase, have also gained strong customer traction. Offering 90% LTV to the customers is not feasible for the banks because of the volatility of the gold prices,” he said.
The average ticket size of gold loans in the case of Muthoot Finance has gone up to Rs 60,000 from Rs 48,000 in the pre-Covid period. “Interestingly, our [email protected] (launched in June) ticket size has been nearly six times as much at around Rs 3.5 lakh and we are seeing good traction among high value customers,” said Muthoot.
Indel Money, on the other hand, has witnessed a 30% increase in average gold loan ticket size. “In the pre-Covid period, our average ticket size was Rs 65,000. In the post-Covid period, it has gone up to Rs 85,000,” said Mohanan.