Gold loan market set to transform: India Gold Policy Centre

By Suneeta Kaul

The importance of gold in the socio-economic milieu of India is fairly well-documented – it is not only a hedge against inflation and an immediate source of cash, especially for rural households, it also has an emotional and cultural value for Indians, for whom gold means well-being and economic security.

Dwelling on the myriad uses of gold in India, the India Gold Policy Centre at the Indian Institute of Management, Ahmedabad (IIMA), conducted the fourth Gold and Gold Markets conference on February 5, 2021. The conference was held virtually, keeping in mind the COVID pandemic.

Among the various sessions held during the conference, the one that stood out was a presentation made by Sumeetha Mokkil Maruthur of Christ University, Bangalore, on the growth of the gold loan market in India. Her case study dwelt particularly on the Kerala gold loan market, a topic on which she had several interesting insights to share.

Gold loan market in Kerala

Maruthur started off by pointing out that in rural areas, due to the lack of access to banks, the poor continue to invest their savings mainly in gold. Kerala having the highest per capita consumption of gold, the yellow metal is even more precious in this southern state.

As per an RBI study conducted in 2017, about 18% of debt in Kerala is in the form of gold loans, the highest for any Indian state. In spite of being home to just 3% of the country’s population, the state accounts for 20% of the total gold sales. It, thus, comes as no surprise that two of the largest NBFCs — Muthoot Finance and Manappuram Finance — which control about 90% of the gold loan market in India, have their origins in Kerala.

Out of these, Muthoot is India’s largest gold financing company. It makes credit accessible across the economic pyramid, especially to the unserved segments. In 2019-20, its gold loan Assets Under Management registered a 21% increase over the previous financial year, signifying the increasing demand for gold loans in Kerala.

As for Manappuram, it was the largest wealth creator for the year 2019, as per the list of ET500 companies with market capitalisation of over Rs 5000 crore. The company provides loans against the pledge of used household jewellery, extending short-term gold loans primarily to those who require funds on an immediate basis and who may not have access to formal credit.

Going forward

Recent developments have increased the potential and scope of gold loans in the state even further. Firstly, the pandemic has created peculiar circumstances, having eroded wealth and impacted businesses, particularly small ventures. Small traders and the self-employed, who desperately need money to resume business, are finding gold loans an easy method to generate much-needed resources. Besides, salary cuts and job losses are also forcing more people to go for gold loans.

Moreover, the increasing return migration of the Gulf-based Malayalis has opened avenues for loans for new small businesses. In fact, gold is widely being used by return migrants as collateral for raising loans. Additionally, a robust online market is also providing a boost to the gold loan business, with transactions and payments going digital.

Maruthur concluded by saying that all in all, NBFCs have a greater potential for growth in the gold loan market, as compared to banks operating in the same segment. The post-COVID situation is creating new dynamics, and increasing digitalisation is set to transform the gold loan market and make it even more relevant than before. With customers now able to avail gold loans from the comfort of their homes, the business is set to enter a new growth phase.

Courtesy: Retail Jeweller India News Service