Gold-loan NBFCs maintain a resilient market share despite bank competition: CRISIL

Non-banking financial companies (NBFCs) specialising in gold loans have maintained a resilient market share despite strong competition from banks, supported by robust capitalisation, risk management, and profitability. This has resulted in stable credit profiles. 

The growth in assets under management (AUM) of these NBFCs has been driven by customer retention, focus on small and mid-size loans, and expanding branch networks. Despite banks' competition, gold-loan NBFCs' market share remains over 60 per cent from March 2021 to September 2023. 

Malvika Bhotika, Director, CRISIL Ratings said, “Gold-loan NBFCs have bolstered clientele and managed growth by opening branches in new geographies, offering online gold loans and door-step services, and deploying marketing strategies to target inactive customers.”

Banks have focused on non-agricultural gold loans for personal use, especially in the Rs 3 lakh and above ticket sizes. Meanwhile, NBFCs have sustained growth and market share by matching banks' growth at ~10-11 per cent. 

Gold-loan NBFCs' growth is highly influenced by gold prices. In fiscal 2023, gold prices rose ~10 per cent, with loan books rising in tandem. From an asset quality perspective, timely auctions have kept the credit cost in check, at 0.2-0.4 per cent historically. The discipline on loan-to-value (LTV) and auctions remains high as gold-loan NBFCs maintain a sharp focus on risk management. 

Lending yields have been on an uptrend over the past two quarters. Lending spreads will continue to be over 10 per cent, backed by the ability to pass on the rate increases to customers. Profitability is expected to remain comfortable in the range of 3.5-5 per cent for large gold-loan NBFCs.

Prashant Mane, Associate Director, CRISIL Ratings said, “The healthy profitability, leading to robust internal accrual, will continue to support growth without the need for any external equity infusion. Consequently, gearing levels are expected to remain comfortable at less than 3 times over the medium term.”

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