Assets under management of non-bank gold-lending financial firms to grow 12-14% in FY23: analysts

Second, gold lending NBFCs compete on service, last mile reach, and domain expertise, which is difficult for banks to replicate.

Assets under management (AUM) of non-bank financial gold lending companies (NBFCs) are expected to grow by 12-14% in fiscal year 2022-23, driven by strong gold prices and limited borrowing options for some customers. segments.

However, due to increased competition from banks in the higher lending segment, gold-focused NBFC loan growth is likely to remain subdued in FY22.” Gold-lending NBFCs also taking awareness of market demand at appropriate returns, growth is expected to be higher in FY23,” said Sanjay Agarwal, Senior Director of CareEdge.

Non-bank lenders generally face competition from banks in lending larger notes, which ranges between 3 and 5 lakh. Second, gold lending NBFCs compete on service, last mile reach, and domain expertise, which is difficult for banks to replicate.

Analysts say that even though banks are aggressively targeting the gold lending segment, NBFCs are expected to remain key players in this segment due to their pan-India presence, ability to facilitate transaction at very short notice and a hassle-free process.

On the asset quality front, the reported non-performing assets (NPA) of gold lending NBFCs could experience variations depending on the evolution of gold prices and the timing of auctions undertaken by these entities.

The analyst said gold as an asset class provides good recovery and capital loss is not perceived. But there are some losses in the auction. “The principal loss is almost negligible. However, there could be some amount of auction losses that could impact the interest portion of the gold loan, the recovery of the principal is to its fullest extent,” said said Jinay Gala, Associate Director, India Ratings and Research.However, the impact of the cost of credit on profitability has been quite modest.

A Reserve Bank of India circular – issued on November 12, 2021 – on bad debt repricing is likely to have minimal impact on gold lending NBFCs, said AM Karthik, Vice President and Sector Head , Financial Sector Ratings, ICRA. This is due to the fact that these entities have a bullet refund system. Borrowers are also incentivized by lower interest rates if they repay their loans before the due date.

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