As long as there is a high demand for credit, non-banking financial organizations (NBFCs) that specialize in gold loans should experience a respectable increase in payouts this fiscal year, according to a report released on Friday.
Positive movement in gold prices has also helped to promote the expansion of gold-loan NBFCs, according to a CRISIL Ratings review of these financial institutions.
The June payouts, which were 12% more than the average monthly disbursements in the previous quarter, provide early evidence of rising momentum. The growth was even higher—23%—when one major participant was excluded, according to Ajit Velonie, Senior Director of CRISIL Ratings.
Their ability to react to changing legislation and maintain operational resilience have been key factors in their recent success.
This fiscal year, the recommendation in May that limited cash disbursements was a significant regulatory change.
Following the Income Tax Act’s regulations was advised by the Reserve Bank of India (RBI) in a letter to a few non-bank finance companies (NBFCs) that offered gold loans.
That implies that debts totaling more than Rs 20,000 cannot be paid back in cash. The study stated that any additional funds must be transferred using banking channels like the Unified Payments Interface (UPI), Real Time Gross Settlement (RTGS), or National Electronic Fund Transfer (NEFT).
Director of CRISIL Ratings Malvika Bhotika stated that NBFCs have been struggling with the drop in gold prices following the reduction in customs duties that was announced in the Union Budget for the entire fiscal year.
Nevertheless, for two reasons, the falling price of gold has not had a major impact on gold-loan NBFCs.
As of June 30, 2024, the portfolio loan-to-value (LTV) range for these NBFCs was modest, ranging from 60 to 65 percent (on a mark-to-market basis), providing a sufficient buffer to handle unfavorable fluctuations in gold prices. Two, in order to control LTV, these NBFCs have generally concentrated on recurring interest collection, according to Bhotika.
The firm stated that it would be prudent to monitor any significant decline in gold prices and their continued stability at lower levels.
