Gold loan non-banking financial companies (NBFCs) experienced significant growth in June 2024, even as the Reserve Bank of India (RBI) imposed cash disbursement restrictions, a CRISIL report reveals. This growth is buoyed by favorable gold prices and strong risk management practices.
Ajit Velonie, Senior Director at CRISIL Ratings, highlighted an approximate 12% rise in June’s disbursements compared to the previous quarter’s average, with a notable 23% growth excluding one large player. These NBFCs effectively navigated the RBI’s May 2024 directive, which mandated non-cash disbursements for loans exceeding Rs 20,000.
The transition to digital channels was smooth, with only a minor increase in turnaround time, helping NBFCs maintain competitiveness over banks. However, CRISIL cautioned that a prolonged decline in gold prices could impact the sector. NBFCs must closely monitor loan-to-value (LTV) ratios and conduct timely auctions to mitigate risks.
Despite the drop in gold prices following a reduction in customs duty in the Union Budget, the impact on gold-loan NBFCs has been minimal. According to CRISIL’s director Malvika Bhotika, this resilience is due to a low LTV range of 60-65% as of June 30, 2024, and a focus on periodic interest collection.
These measures indicate that gold loan NBFCs are well-positioned to manage gold price volatility and continue their robust performance despite regulatory changes.
