Gold-loan NBFCs facing tough challenges from banks: CRSIL

Mumbai The market share of gold-loan focused non-bank financial companies (NBFCs) has been resilient at over 60 per cent between March 2021 and September 2023, despite strong competition from banks, says a report.

According to a Crisil Ratings report, the NBFCs continue to hold onto their market leadership with 61 per cent of the market in the September quarter, down by 100 bps on-year.

During the pandemic year in FY22, these NBFCs, however, enjoyed 64 per cent of the market when it stood at Rs 2 lakh crore, the agency said, adding in the year before their share had stood at 61 per cent of the Rs 1.9 lakh crore market then.

In FY23, their share had fallen by 200 bps from FY22 to 62 per cent of the Rs 2.3 lakh crore market.

Though private players lead with nearly two-thirds of the market, the largest player is the state-run Canara Bank with over Rs 1.3 lakh crore of outstanding loans.

Meanwhile, banks have increased their share by 100 bps to 39 per cent of the Rs 2.5 lakh crore-market in the reporting year.

On their part, banks have sharpened their focus on non-agri gold loans particularly in the Rs 3-lakh and above ticket sizes, over the past three years.

According to Malvika Bhotika, a director with the agency, gold-loan NBFCs have bolstered clientele and managed growth by opening branches in new geographies, offering online gold loans and door-step services, and deploying marketing strategies to target inactive customers.

Gold loan growth for NBFCs is influenced by change in the prices of the precious metal. In fiscal 2023, gold prices rose 10 per cent, with loan books rising in tandem, supported by bigger ticket sizes.

Similar was the trend in the first half of the current fiscal, with prices rising 13 per cent while AUM of NBFCs growing by 10 per cent.

According to Crisil, growth in the assets under management (AUM) of gold-loan NBFCs has been driven by three factors: ability to hold on to their customers as seen in a steady base; focus on small and mid-size loans; and increasing reach by expanding branch networks.