Rajalakshmi, a homemaker, recently pledged five sovereigns of her gold which she had accumulated over the last four years, at a public sector bank in Chennai to meet her financial expenses. Until the COVID-19 pandemic broke, the 48-year-old was working as a domestic help in two houses (earning ₹4,000 a month per house) while her husband was working as a cook at a small restaurant with a salary of ₹7,000 per month.
“I lost my job last year as many houses stopped allowing housemaids. The restaurant where my husband worked wound up business in January and he has just found another job. I have to now pay my daughter’s school fees and son’s college fees – I had some savings which wasn’t sufficient so I thought I will pledge my gold ornaments for the time being,” she said. Educational institutions are demanding payment of fees in one instalment, she added.
- Metric| Gold loan NBFCs|Banks| TNSC* Bank|Money lenders
- Loan to value (%)| upto 75| up to 75|75|more than 75
- Interest rate per annum |11-24|7-15*|5-9.25|25-50
- Regulated by| RBI|RBI|RBI|not regulated
- Turnaround time|5-10 minutes|1 hour|less than 10 minutes| over 10 minutes
- *Tamil Nadu State Apex Co-operative Bank (TNSC)
- *Banks provide gold loans for agriculture at 4% and the limit is ₹3 lakhs
- (Source: Industry, KPMG)
The branch manager of this particular bank said that during the pre-COVID times the bank had 5-7 people walking in per month to pledge gold, but now almost everyday customers are walking in to avail the loans.
“More women are coming to pledge gold to help their husbands’ business, pay school/college fees and even to pay off hospital bills for their loved ones. The numbers are going up day by day,” the branch manager pointed out.
As per industry estimates, the size of the gold loan market in Tamil Nadu is ₹6 lakh-crore. Out of this, unorganised sector (pawnbrokers and money lenders) account for ₹5 lakh-crore and the remaining share is from organised players including banks (private, public, co-operatives and small finance), non-banking financial companies (NBFCs) and nidhi companies.
Now with COVID-19 lockdown norms being eased, those in the business of gold loans are expecting a higher demand.
“Most of our branches were working for limited hours due to the lockdown imposed in the state and we are slowly starting our regular operations. We are expecting our loan disbursement to pick up momentum in coming days,” George M. Jacob, executive director, Muthoot Finance, India’s biggest gold loan NBFC said.
- The size of Tamil Nadu gold loan market is estimated at ₹6 lakh crore
- Unorganised players like pawnbrokers and moneylenders account for ₹5 lakh crore
- Remaining ₹1 lakh crore share is by organised players like non-banking financial company (NBFCs), banks (including co-operatives), Nidhi companies
- Gold loans are popular both in urban and rural areas due to features like quicker processing time, no requirement of income proof or prior credit history
- (Source: Industry, KPMG)
Same was the response of a spokesperson from Manappuram Finance Ltd, another key player in the segment, who said, “During the period of a lockdown, we were able to serve most of our existing customers through online channels, however, new customer acquisition becomes difficult. Now that lockdowns are coming to an end, we expect there will be a pick-up in the demand for gold loans as economic activities pick up.”
The gold loan companies had seen a huge demand during the first wave of the pandemic last year. For instance, Manappuram’s gold loan asset under management in Tamil Nadu increased about 20% to ₹2,200 crore as on December 31, 2020 from ₹1,825 crore as of December 2019.
In Tamil Nadu, the co-operative banks have disbursed gold loans to the tune of ₹30,000 crore in the last financial year, according to a senior official from The Tamil Nadu State Apex Co-Operative (TNSC) Bank Limited. TNSC had a gold loan portfolio of ₹1,000 crore and the 23 District Central Co-operative Banks had a portfolio of ₹6,000 crore as of March 31, 2021.
The official said TNSC Bank offers the lowest interest rate of 9-10.25% per annum across its jewel loan schemes, when compared to 12-24% by NBFCs.
The official also said co-operatives are going slow on gold loan disbursement now due to the expectation of the gold loan waiver announcement from the state government. Minister for Co-operatives, I. Periyasamy recently said that the state government would soon issue an order for waiving off loans against gold of up to 5 sovereigns, which was one of DMK’s poll promises.
An official from Karur Vysya Bank Ltd said the bank has not witnessed any dramatic increase in the demand for gold loans across segments like agriculture, personal and commercial during the second wave as compared to the first wave. “Once the wave is over and people start returning to normal life, we expect some significant growth in the gold loan portfolio,” he added.
Most organised players said though they expect some problems in repayment due to the impact from the second wave of pandemic, but there won’t be huge NPA in the segment as gold holds a sentimental value and people want to redeem it.
