Assets beneath administration of gold loan-focussed Non-Banking Financial Companies (NBFCs) are prone to develop 18-20 per cent to Rs 1.3 lakh crore this fiscal on larger demand for such loans, says a report.
Crisil Ratings in a report on Tuesday additionally stated demand for gold loans from micro enterprises and people — to fund working capital and private necessities, respectively — has elevated with the pick-up in financial exercise and the onset of the festive season.
This pattern additionally coincides with the easing of lockdown restrictions by a number of states.
The company’s Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman stated gold mortgage disbursements have rebounded sharply within the second quarter of this fiscal after a dismal first quarter.
“We expect the momentum to continue for the rest of this fiscal. Gold loans will continue to be a sought after asset class while lenders would remain cautious about growth in many other retail asset classes,” Sitaraman stated.
From a credit score perspective, gold loans are a extremely secured and liquid asset class that generates superior returns with minimal credit score losses.
Therefore, NBFCs that supply them are higher positioned than these extending loans to most different retail asset lessons, particularly in occasions of asset-quality stress spawned by the pandemic, the report stated
It famous that traditionally, gold mortgage NBFCs have seen negligible losses due to strong threat administration practices reminiscent of periodic curiosity assortment (which retains the Loan-To-Value beneath examine) and well timed auctions of gold.
Maintaining LTV self-discipline provides to the consolation. But sharp swings within the value of gold impacts each the portfolio and disbursement LTV because it influences the cushion obtainable with lenders.
Lenders confronted this difficulty final fiscal as a result of gold costs fell sharply between January and March 2021 after the August 2020 peak. On their half, NBFCs have manoeuvred the scenario effectively, the report stated.
“Gold loan NBFCs have been swift in calibrating disbursement LTV while also implementing strong risk management practices to keep portfolio LTV in check,” the company”s Director Ajit Velonie stated.
Besides guaranteeing periodic curiosity assortment, these NBFCs don’t flinch from conducting auctions when required — which rose sharply in March and April 2021 — to avert potential asset-quality challenges, he stated.
With leverage being low and pre-provision profitability remaining robust, the company expects the general credit score profile of gold mortgage NBFCs to stay secure.