FADING GLOW

New Delhi: After registering rapid growth for the past few years, the gold loan business has taken a hit in the first two quarters of this financial year, owing to the tightening of norms by RBI. Non-banking finance companies (NBFCs) offering gold loans say growth has declined despite increased prices of gold offering better leverage (more loans) to the consumer.

    Even as companies expect a slight revival in the third quarter, executives say gold loan growth will be in the range of 10-15%. This is a sharp fall as compared to the last year when major gold loan companies posted an over 50% growth rate.
    Earlier this year, RBI had capped the loan-to-value (LTV) ratio for NBFCs at 60%. Prior to that, most NBFCs had been offering LTVs up to 70% of the gold value. Consequently, a large customer base has shifted to the unorganized segment for better returns.
    The central bank had also directed NBFCs having half of their assets in gold to have a Tier-1 capital of 12% of riskweighted assets by April 2014. Loans against bullion and gold coins for NBFCs too were banned and the RBI had asked
banks to bring down the credit exposure to a single NBFC from existing 10% to 7.5% of total exposure in the segment. Analysts say these steps are intended to check imports of gold in the country as the government is "highly uncomfortable" with the increased demand for gold loans.
    Kerala-based Muthoot Finance, a leading gold loan company, said it witnessed a 5% fall in growth in the first quarter this year as compared to the same period last year. Gold under custody too declined from 137 tonnes to 130 tonnes in March-June. "We are looking at a flat growth in the second quarter. We hope growth picks up to at least 10-15% in the third quarter," Muthoot Finance CFO, Oommen Mammen, said. Because of the new regulatory framework, the company is currently in a consolidation phase. Muthoot Fincorp, another gold loan company, is looking at coming up with 50-100 stores. It witnessed a growth rate of 3% over last year.
    However, industry experts remain positive.
    "The business will definitely continue despite the government doing everything to see that it does not pick up," said Gnanasekhar Thiagarajan, director, Commtrendz Research.