Banking News

gold loans: HNIs turning to gold loans to meet emergency requirements

Non-banking finance companies (NBFCs) that focus on gold loans are witnessing increasing demand for loans from high-net-worth individuals (HNIs) to fulfil emergency fund requirements.

HNIs now comprise about 9-12% of such NBFCs’ customer base, joining MSMEs and traders among the large takers of gold loans.

An increasing gold price is driving this demand. A higher price means a greater amount of credit available to the customer, Muthoot Finance managing director George Alexander Muthoot said. For the Kerala-based NBFC, HNIs account for nearly 12% of its customers.

“The digital convenience and doorstep gold loan facility have made gold loan a suitable and accessible route to avail of credit. That is why a section of digitally savvy millennials and HNIs are opting for gold loans to fulfil emergency fund requirements in the comfort of their home,” said Umesh Mohanan, chief executive of Indel Money. “These two segments now constitute 9% of our segment and are fast growing.”

Commercial banks are giving a tough competition to the NBFCs as they are aggressively marketing gold loans.

“Despite rising competition, we have been able to retain our old customers and even attract new ones. Going ahead, we will continue to invest in branch expansion, digital initiatives and we will also be further diversifying our non-gold lending business. Besides, with the Indian economy being resilient, we are seeing steady demand for gold loans,” said Muthoot.

“We continue to follow a two-pronged approach of strong brick and mortar presence along with digital strategy. Last year we received approval from the RBI to open 150 new branches. Today, nearly 115 (of these) branches have already commenced operations pan India. The remaining branches will open by March 2023,” he added.The company also expects the ticket size of loans to grow, he said.

While HNIs and NRIs are showing more interest in gold loans, NBFCs expect sustained demand from MSMEs.

Gold loans work out as a much more flexible, convenient, and quicker credit option for MSMEs than bank loans, according to them. Additionally, gold loan credit is offered at competitive interest rates which help MSMEs meet their short-term working capital needs.

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