The consumers in India used their gold holdings as collateral to fulfill their financing needs rather than outrightly selling it during the COVID-19 pandemic phase, revealed a report by the World Gold Council.
The report titled “Gold loans help India weather the COVID-19 storm”, stated that demand for gold loans during the pandemic phase remained strong, both through non-banking financial companies (NBFCs) and banks during the phase.
“Demand during the pandemic has pushed gold loan AUM (asset under management) higher for India’s leading gold loan NBFCs – the AUM of Muthoot Finance and Manappuram Finance increased by 15 per cent and 33.4 per cent year-on-year (y-o-y) respectively in Quarter 2 of 2020. Kerala-based bank Federal Bank reported 36 per cent increase in gold loan AUM y-o-y in Q2 2020. Indian Bank has witnessed 10 per cent increase in the average ticket size of gold loans to Rs 88,000. Recent industry interaction and media articles have also mentioned higher demand for gold loans,” the report said.
It also added that demand for gold loans during the pandemic has been strong both through NBFCs and banks. Banks have aggressively promoted and launched gold loan schemes since the outbreak to capitalise on these lucrative schemes. Several banks started to promote gold loan schemes, including SBI, ICICI and HDFC, among others.
Stating that technology can become a key enabler in the growth of the gold loan market in the country, with gold loan NBFCs already embracing online gold loan scheme, it said that more can be done with “launching of self-servicing kiosks in branches and public location, the launch of gold valuation machine, e-KYC and loan disbursement and repayments using e-wallets and prepaid cards.”
“With the expansion in branch networks by gold loan NBFCs and a greater use of technology, the growth outlook for the organised gold loan market looks promising in India. It is expected to reach Rs 4,617 billion (USD 62.8billion) in FY 2022 from Rs 3,448 billion (USD 47 billion) in FY 2020 at an annual growth rate of 15.7 per cent,” the report said in its outlook.
Commenting on the report, Somasundaram PR, Managing Director, India, World Gold Council said, “The gold loan industry has traditionally been a pillar of support for small businesses and households in need of emergency short term assistance. In addition to unorganised lending that normally co-exists with any robust gold market, the regulated institutional framework of ‘gold loans’ in India has made it ubiquitous over the past decade, which is indeed a boon.”
“In particular, COVID has boosted demand for gold loans through banks and non-banking financial companies. The recent rise was seen some time since July 2019 when prices started moving up sharply. A 28.8 per cent rally in domestic gold price this year and the need for quick credit among small businesses will further spur gold loans growth post-Covid. Gold loans will benefit not just from the demand side but supply-side dynamics too as many banks and non-banking institutions target this product segment on account of its acceptable risk profile,” he added.
Somasundaram further said the recommendations contained in the report will be helpful for the gold loan industry.
“This report outlines the growth story of gold loan market in India, its regulatory landscape and highlights key trends during Covid-19 with pointers to how technology has enabled greater reach and adoption. It also shares recommendations on what more can be done to increase the penetration of financial inclusion through the gold loan industry,” he added.