Gold-loan NBFCs have managed to maintain a resilient market share despite strong competition from banks, according to a report by CRISIL. The growth in assets under management (AUM) of these NBFCs has been driven by customer retention, focus on small and mid-size loans, and expanding branch networks. Despite banks’ competition, gold-loan NBFCs’ market share remains over 60% from March 2021 to September 2023.
Banks have focused on non-agricultural gold loans for personal use, especially in the Rs 3 lakh and above ticket sizes. Meanwhile, NBFCs have sustained growth and market share by matching banks’ growth at ~10-11%.
The growth of gold-loan NBFCs is highly influenced by gold prices. In fiscal 2023, gold prices rose ~10%, with loan books rising in tandem. From an asset quality perspective, timely auctions have kept the credit cost in check, at 0.2-0.4% historically. The discipline on loan-to-value (LTV) and auctions remains high as gold-loan NBFCs maintain a sharp focus on risk management.
Lending yields have been on an uptrend over the past two quarters. Lending spreads will continue to be over 10%, backed by the ability to pass on rate increases to customers. Profitability is expected to remain comfortable in the range of 3.5-5% for large gold-loan NBFCs. The healthy profitability 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.
