Gold loan business set for new highs
The gold lending business is expected to hit new highs this year. Many small business owners and individuals are expected to mortgage their home gold to cover their immediate expenses as their revenues dried up amid a severe second wave of Covid-19.
Funds to resume business once local closures and restrictions are lifted, many of them generally opting for gold loans with an average invoice amount of Rs 50,000, Non-Bank Financial Firms (NBFCs) dedicated to trading shares over the ET.
This financial year will grow between 15 and 50% compared to the previous year.
“With closings and restrictions in most parts of the country in April and May, people cannot opt for gold loans,” said George Alexander Muthoot, executive director of one of the country’s largest gold-lending NBFCs. “Once the economy is open again, it will take money to get the business going again, and then the demand for gold credit will increase even in the first phase of the pandemic.”
Muthoot Finance gold loan business grew 26% year over year to Rs.52,622 billion over the 2020-21 period. “Our forecast for the current fiscal year is 15% growth over fiscal year 21,” said Muthoot.
Indel Money, another South Indian gold lender, expects its business to grow 50% this fiscal year as it opens more branches and opens up new regions.
“It’s safe and expected that domestic gold would be pledged once the state lockdown is lifted and the movement eased,” said Umesh Mohanan, CEO of Indel Money. “There are many factors behind the sudden surge.” Firstly, this time there is no moratorium or relaxation of the legal obligations between the authorities so that the commoner has liquidity problems due to his promised outflows compared to his limited inflows. Secondly, the number of Covid cases is much higher this time, with a wide range of the affected age group. There are more deaths and post-Covid diseases are also increasing”.
Mohanan said a significant increase in health care requirements had led many households to opt for gold loans. However, gold promises may not get customers more money because prices have fallen, and the outlook for gold is not optimistic either.
“In the midst of the decline in growth and inflation risks, we assume that the demand for gold and silver as a safe haven will continue to decline, and prices will fall in the medium and long term,” says Carsten Menke, Head of Research Management Company Julius Baer. “This is unlikely to be offset by a pickup in demand in Asia. While Chinese and Indian imports have been improving recently, we interpret this as a rebuilding of depleted inventories rather than a sustained surge.