Non-bank financial companies (NBFCs) specialising in gold loans could see assets under management (AUM) rise 18-20% to Rs 1.3 lakh crore this fiscal, Crisil NSE 0.52 % Ratings said on Tuesday. This would be despite a contraction in the first quarter, when the pandemic-driven lockdown measures hindered branch operations and kept potential borrowers away.
“Gold-loan disbursements have rebounded sharply in the second quarter of this fiscal after a dismal first quarter,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings. “We expect the momentum to continue for the rest of this fiscal. Gold loans will continue to be a sought-after asset class, while lenders would remain cautious about growth in many other retail asset classes.”
Demand for gold loans from micro enterprises and individuals – to fund working capital and personal requirements – has increased with the pick-up in economic activity and the onset of the festive season, which coincides with the easing of lockdown restrictions by several states.
From a credit perspective, gold loans are a highly secured and liquid asset class that generates superior returns with minimal credit losses. Therefore, NBFCs that offer them are better placed than those extending loans to most other retail asset classes, especially in times of asset-quality pressure spawned by the pandemic, the ratings company said.
Historically, gold-loan NBFCs have seen negligible losses because of robust risk management practices such as periodic interest collection and timely auctions of gold.