Why the future is digital for gold lending companies-Umesh Mohanan


While the pandemic has seen gold NBFCs grow at a faster rate than the broader economy for well-known reasons, the post-pandemic world will see digital first NBFCs grow at an even faster rate than the economy as a whole. together

Over the past three to four years, things have been so good for non-bank financial companies (NBFCs) lending gold. As household income has contracted significantly following the Covid-19 induced lockdown, demand for gold loans has increased among teenagers and according to the latest figures available, the sector has grown at an 18% pace. 20% in the last fiscal year. , while the economy as a whole grew at a modest rate of 8.9%.

Arguably at the forefront of this exceptional growth story was gold lending NBFCs which over time have emerged as significant contributors to gold lending activity by becoming the top pick among borrowers through less stringent regulations and faster loan disbursements. Estimates show gold lending NBFC assets under management (AUM) grew 6% in FY22 and are expected to grow at an 11.4% pace in FY23 .

However, there are enough indications to suggest that this phase of strong growth for gold lending companies is being tested by new business risks and growing competition from traditional players like commercial banks. as well as the entry of large numbers of fintech companies into the fray. New risks giving NBFC gold lending tough times include rising delinquency rates so far.

Growing strains on the sector stem, on the one hand, from the volatility of gold prices with a downward bias and the inability of borrowers, including households and small businesses, to service on-time loans, on the other hand, as their cash flow remained strained due to various reasons. Further, while gold lending NBFCs reported asset under management growth of 20.8% in FY21, commercial banks’ gold lending portfolio grew at a rapid pace. 82% over the same period.
Faced with fierce competition from banks and fintech players, nimble and nimble gold lending companies are coming up with new products such as lending against digital gold and new ways of onboarding customers to increase the size of their loan portfolio. To increase the gold loan portfolio and strengthen market reach, attracting private equity funds is an effective way forward. The domestic gold lending market is still under-penetrated in India and the injection of private equity can enable growth-oriented gold lending NBFCs to expand their footprint. Fintech platforms offering gold loans also aim to attract private equity investment. Private equity investment has, in a way, strengthened the corporate governance standards and risk management systems of gold lending companies.

It may be useful here to list some of the new trends that have recently taken hold in the field of gold lending. The first and foremost trend is to lend against digital gold that has taken root among gamers. This will clearly create a new market for gold lending franchisees who have invested ahead of the tech curve by taking a lesson in half from the proven fintech industry playbook. This makes business sense for them since the country has a growing digital gold market valued at around $2.5 billion at the end of March 2022.
The lending push against digital gold will help gold lending companies grow in two ways. First, the digital marketplace will help borrowers connect with lenders seamlessly, dramatically reducing the loan cycle. It also helps lenders to keep the customer base intact and grow it in the future. Second, it will also significantly reduce pressure on lenders’ margins, as they won’t have to shell out money to store the pledged gold. It also gives the opportunity to increase margins as long as the cost of funds for the companies remains competitive, which means that the company is largely financed by net equity rather than higher borrowings at high rates, because the rate cycle is about to recover.

Third, the launch of the spot exchange for gold by the National Stock Exchange (NSE) in association with the India Bullion and Jewelers Association. The platform is expected to bring order to gold trading in the second largest consumer nation of the yellow metal by ensuring better price discovery, efficiency and transparency. The trading platform should reduce price volatility, giving more visibility to gold prices and lending activities.

Fourth, now may be the time for companies that lend against gold to think about introducing new products like credit cards and gold secured wallets. While there are seemingly no precedents in business to emulate, one can recall that product innovation is at the heart of the startup revolution that has taken the country by storm over the past decade. , earning the nation the nickname startup land of the world. after the United States and China.

In summary, while the pandemic has seen gold NBFCs grow at a faster rate than the broader economy for well-known reasons, the post-pandemic world will see digital first NBFCs grow at an even faster rate than the economy as a whole.

Disclaimer: The views expressed in the article above are those of the authors and do not necessarily represent or reflect the views of this publishing house. Unless otherwise indicated, the author writes in a personal capacity. They are not intended and should not be taken to represent the official ideas, attitudes or policies of any agency or institution.


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