Gold loan companies (GLCs) are eyeing a golden opportunity to step up lending in FY21 in the backdrop of surge in the price of the yellow metal, banks turning risk averse and small and mid-size non-banking finance companies grappling with liquidity issues, amid outbreak of the corona virus pandemic.
While business has been hit due to the ongoing nationwide lockdown, which started from March 25 to contain the spread of the virus, GLCs expect to bounce back to usual business levels once the restrictions on movement of people and keeping businesses open are relaxed in certain parts of the country in the next couple of days.
George Alexander Muthoot, Managing Director, Muthoot Finance Ltd, observed that while the Government is trying to put more purchasing power in the hands of people, it is doing so through banks, which have turned risk averse. Hence, gold loans will see a pick up.
“Once the lockdown is lifted, there will be good demand for gold loans in the next two-three quarters,” he said.
Muthoot sees a 15 per cent growth in assets under management (AUM) in FY21.
VP Nandakumar, MD and CEO, Manappuram Finance Ltd, expects gold loan growth to remain fairly strong, say, about 10 percent or so.
“Most of our gold loan customers already have a de-facto credit line with us. This is in the form of undrawn LTV (loan to value) against their pledged gold, whose value has appreciated recently.
“The average LTV of our gold loan portfolio is about 60 per cent whereas RBI’s prescribed cap on LTV is 75 percent. Customers have the option to renew their loans at a higher LTV,” explained Nandakumar.
LTV is the percentage of the apprised value of the pledged collateral that a lender is willing give as loan. For gold loans, the RBI has capped the LTV at 75 per cent.
At 75 per cent LTV and gold price of Rs 3,500 per gram as on January 1, 2020, GLCs could give Rs 2,625 as loan. But with the price of gold appreciating to Rs 4,035 per gram as on April 30, 2020, the amount of loan that these companies can give has increased to Rs 3,026.
Enough liquidity firepower
Muthoot emphasised that his company had raised about $1 billion via external commercial borrowings (ECBs) about four months back to support business growth.
“We have loans from 25 banks and raised funds via commercial papers and non-convertible debentures. We are not asking any of these banks or investors for any moratorium. We are paying the interest and principal on time, on due date,” he said.
Nandakumar said Manappuram Finance had raised $300 million in January and its borrowings are getting rolled over without a hitch. Therefore, his company is not pressed for funds.