By Jayachandran. S, Zonal Business Head – Gold Loans, Fedbank Financial Services Ltd
The yellow metal or the Gold, is recognized as a universal currency and has been the most reliable liquid asset traditionally. India, which is one among the largest market of gold and is a country where gold is preserved traditionally. This magnificent metal is considered as an auspicious asset in the country. Unlike the foreign countries, Indians have the practise of preserving gold in the form of jewelry and presumed to be a dependable resource during economic crunches.
Pawning or gold lending is a century old practice in India. That in the past, unorganized gold lenders offered loans against gold as collateral security. Yet, until recently, people did not leverage the opportunity effectually owing to several reasons such as lack of transparency, unauthorized business practices, high interest and so on.
The Role of NBFCs in the Gold Loan Market
Nevertheless, with the entry of organized NBFCs and other financial sectors altered the whole scenario by bringing in more awareness among the consumers. Today, the NBFCs command more than 25 percentage of the gold loan market. Furthermore, the scenario of organized gold loan sector has changed, where it has it has seen tremendous growth of 40 to 50 percentage CAGR in the past decade.
Some of the real facts behind the growth of organized Gold loan lending practices are below mentioned
- Awareness among consumers
- Transparency in Transaction
- Reduce Gold Loan Interest
- Quick Processing
- Extensive Network,
- Fast Turnaround Time
- Apt Services Offered to Non-Bankable Patrons
- Advanced Loan-To-Value Ratios
- Involvement of Technology
- Implementation of New Product Features and Services
- Convenient working hours
- Both small loans/large loans are offered
Of late, NBFCs and other non-banking sectors have enhanced their services by reducing interest charges, monitoring and scrutinizing of lending practices. With outstanding feature of the business model, non-banking financial sectors and NBFCs have out grown rapidly over the last decades.
Contribution of Technology in Gold Loan market
By “Unlocking the power of gold loan” by reliable NBFCs such as “Fedfina” the organized gold loan market has seen a growth of 40% CAGR in last decade. NBFCs have been contributing major force behind this increase.
The study conducted by significant agencies says that gold loan financiers have shaped a strong scheme over banks with several benefits such as quicker sanctions, easy accessibility, niche customer base, very good and prospective branch network that deals with only gold loans, easy repayment schedules. Most importantly, the digital world has a significant role in the gold lending market by offering the below-mentioned benefits.
- Digital marketing technology has made the business to reach huge audience in global level
- Technology has offered scalability to gold lending businesses, allowing quick roll-out of branches and well-organized penetration of the non-bankable customer market.
- Delivery of exact real-time information
- Need based selling
- Reduced turnaround time for loan disbursals
- Reduced human intervention, which resulted in the approval, distribution and repayment process easier and faster
- Better obedience to lending regulations such as KYC, priority lending, and so on
- Efficient tracking of accounts, process transparency and reduced operational costs
Coronavirus and Gold Loan Business
With the pandemic hit, several jobs were lost and to meet the expenses, the households started depending on pawning. As per the estimation of The World Gold Council the Indian households have a $1.5 trillion hoard of gold, made up of jewelry that families inherited from their ancestors and as savings. For this reason, the gold baked loans are on higher side allowing families to get larger amount of loan against gold.
During this coronavirus pandemic hit, lower middle-class families are depending on gold lending market more than any other segments. The banking sector involvements could help the gold loans market to grow by 20% to 25% this fiscal year as the small businesses and agricultural customers have a lot of family owned gold. Once normalcy returns, this make could expect big jump because of the capital requirement of small business.
What Future of Gold Loan Lending market?
India being the largest market of gold with total of 65 percentage rural gold and 10 percent of total world gold stock as of 2010, our country has grown from 18,000 to 32, 000 million tons during the year 2002 to 2010. The researches show that India's gold loan market is about to touch Rs 4,617 billion by the year 2022 with a growth rate of 13.4 per cent (KPMGreport). Last year 2018-2019, the gold loan lending market has seen a tremendous growth owing to the wonderful expanding methods.
Coupled with focusing on optimizing assets and asset utilization, gold lending companies are leveraging their present infrastructure of branches to make the most of the branch-level AUM and customer outreach. Though many challenges were faced by the gold loan markets such as gold price volatility and liquidity stress in NBFCs, the market is now looking forward to a high growth through below-mentioned methods.
- The Online Gold Loan: With the intense competition faced by gold lending companies, a traditional way of lending could affect their growth. For this reason, all the companies have started digitalizing their operation with new-gen technology and innovative digital models
- Unlocking the power of Gold in the Less Penetrated Market: Generally speaking, the organized gold loan market in the country is played by NBFCs, banks and so on. They cater to the needs of different customers in different segments. To get more customers these multiple players are expanding their geographic expansion by expanding their branches to all places across the country to the unpenetrated market.
With aggressive marketing methods and strategies, they are expanding their business where the gold market is expected to reach 4617 billion by 2022. The above-mentioned reasons like online gold lending method and other new-fintech methods offer their service at the door steps of the customer. The companies are investing more and more in this segment to magnetize digitized and tech-savvy customers. In this scenario, Fedbank has shown exponential growth by its virtue of values exhibited, “Executional excellence, People development, Integrity and Customer centricity” which has been the key drivers of success.
Agriculture Policies and Gold Loan Market
Furthermore, this segment is the newest class of assets, which has outgrown into a huge market. With the latest proposal of lending restrictions on agriculture segment, the gold loan market could see a boost in the market. With the current situation, the government is seeing this market as an effective way to meet the micro-finance demands in the country. To cope up with the raise of borrowing costs removal of agriculture status on loans will benefit the NBFCs. This will certainly develop farming policies to favour gold lending segments of NBFCs.
For the above-mentioned reasons, the gold loan market is expecting for a high-growth potential.