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KOLKATA: Gold loan offtake has slowed down in Q4 of FY21 due to sharp correction in gold prices. Prices of gold have fallen from Rs 51,000 per 10 gm in the beginning of January to Rs 45,000 per 10 gm now. The NBFCs said that the assets under management for this quarter is likely to come down by 1.5 per cent – 2 per cent due to a correction in gold prices.
Talking to ET, Mr VP Nandakumar, managing director & CEO, Manappuram Finance said “The offtake of gold loans has slowed somewhat in recent days, and this may be attributed to the sharp correction in gold prices in the current quarter. As a rule, the price of gold does not have a material bearing on the offtake of gold loans beyond the short term, as this is driven predominantly by the wider demand for credit in the economy, particularly in the unorganised sector and the rural economy.”
“In the short term, however, a period of rising prices improves sentiments and gives a temporary boost to demand. Likewise, falling prices can impact demand temporarily but then, as prices stabilise, it soon becomes the new normal and it is back to business as usual,” Nandakumar added.
Scores of Indians have used their gold holdings in the current financial year as collaterals to meet their financial needs, cashing in on rising gold prices amid the pandemic and economic recession.
Thomas George Muthoot, director, Muthoot Fincorp said “The number of customers has not come down due to the gold price correction. The decline in prices may impact the asset under management (AUM) of the gold loan companies and it may come down by 1.5 per cent -2 per cent in the fourth quarter.”
Gold loan demand is expected to remain firm in FY22 as well as the economic activities gathering momentum with vaccination drive in place. The trend is expected to continue and help the organised gold loan market to grow 15.7 per cent a year to reach $62.8 billion, or about Rs 4,61,700 crore, in 2021-22 from $47 billion, or Rs 3,44,800 crore, in 2019-20, said a report by World Gold Council (WGC).
Corroborating WGC’s view, the Manappuram chief said “Our gold loan AUM at the end of Q3 was Rs. 20,211 crore. For the next year, we expect a growth of 10 to 15 per cent on the back of a strong recovery in the economy.”
The volatility in gold prices have been a concern to the gold loan NBFCs in recent times. However, they are handling it in different ways. Umesh Mohanan, executive director, Indel Money said “With regards to the mark to market watch, we have this system running with us on a day -to -day basis regardless of where the gold price lies, whether low or high. We have handled the situation and still handle the situation in a very tactful manner by means of realigning our expansion plans, revisiting our national strategies, coming up with more effective product ranges like the 1year, and 2year gold loan schemes & accelerating digitization to the core.”