Home / Industry / Banking /  How NBFCs are taking on gold loan companies

MUMBAI : Diversified non-bank lenders are attempting to break the monopoly of gold loan companies by opening standalone branches to offer such loans, cashing in on the demand for quick credit to manage cash flows.

The gold loan segment in India has been dominated by specialized lenders offering quick credit. Some incumbents from other loan segments are now opening similar standalone branches that offer only gold loans, instead of offering it from their existing branches. Here, the wait times are shorter and the service is quick.

Capri Global, a Mumbai-based financier of small businesses and mortgages is the latest entrant in this market. Starting with over 100 branches across Rajasthan, Madhya Pradesh, Delhi-NCR, Haryana, Gujarat, Uttar Pradesh, and Maharashtra, the lender plans to tap the northern and western regions of the country.

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The southern region already has established gold loan companies and the competition there is intense.

“Gold loan companies traditionally started their operations in the south and have good penetration. The northern and western regions have relatively more scope for gold loan products. The gap in demand and opportunity is higher in these areas than in the south," said Rajesh Sharma, managing director, Capri Global Capital Ltd.

Sharma expects the gold loan book to reach 8,000 crore in the next five years. Capri Global’s consolidated assets under management (AUM) stood at 6,977 crore as on 30 June. The lender has also tweaked its branch opening strategy to serve gold loan borrowers. Thus, the gold loan branches are on the ground floor, instead of second and third floor offices that it has at present.

In the case of Bajaj Finance, standalone gold loan branches have shown better traction than regular branches offering gold loans. At present, the non-bank financier has 650 branches from where it offers gold loans, of which 155 are standalone gold loan branches. The lender plans to add 75 more standalone branches in 2022-23.

“Gold loan is an interesting business….We started the test with standalone gold loan branches, the way a gold loan company would do. And we have seen significant results…" Rajeev Jain, managing director, Bajaj Finance, told analysts on 27 July.

According to an NBFC analyst, the customer segment is quite different from other loan products offered by banks and NBFCs.

Gold loan borrowers do not want to wait for hours to get loan approvals, they want quick loans against their jewellery, the analyst said on the condition of anonymity.

“It is not easy to do that at a branch that deals in all kinds of loans and, services different customer segments. In fact, the processes used at gold loan companies are different from what traditional lenders use, leading to quicker disbursal of loans," he said.

Rupeek, a fintech that provides doorstep gold loans, has found customers more comfortable with such an arrangement as it provides them with the privacy of their households while making gold loan transactions.

“Going forward, we see bank branch walk-ins and doorstep offering to co-exist, and play an important role in onboarding new customer cohorts further fostering the larger mission of gold monetization," said Deepak Singhal, senior vice-president (business), Rupeek.

The gold loan market is seeing intense competition ever since some large banks started offering loans against the yellow metal.

To be sure, banks have now gone somewhat slow in offering gold loans, and their aggressive expansion spree has plateaued.

Bank loans against gold jewellery were flat between June this year over the previous year, growing just 0.8% to 75,024 crore.

Analysts said that non-banks still hold a position of advantage in this market, although the gap is narrowing.

They also believe that customers do not want to be seen pawning their gold and, therefore, are not keen on going to a regular branch, where they would have to wait longer.

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ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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