Despite fierce competition from banks, non-banking financial firms (NBFCs) specializing in gold loans have maintained a substantial market position, thanks to excellent capitalization, risk management, and profitability. As a result, credit profiles have remained constant.

Customer retention, an emphasis on small and mid-sized loans, and the expansion of branch networks have all contributed to the growth of these NBFCs' assets under management (AUM). Despite competition from banks, gold-loan NBFCs maintain a market share of more than 60% from March 2021 to September 2023.

CRISIL Ratings Director Malvika Bhotika said, "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."

Banks have focused on non-agricultural gold loans for personal consumption, particularly in ticket sizes of Rs 3 lakh and beyond. Meanwhile, NBFCs have maintained their growth and market share by matching banks' growth rates of 10-11%.

The growth of gold-loan NBFCs is heavily impacted by gold prices. Gold prices increased 10% in fiscal 2023, and loan books increased in tandem. In terms of asset quality, timely auctions have generally kept the credit cost at 0.2-0.4 percent. As gold-loan NBFCs retain a sharp focus on risk management, they maintain strict loan-to-value (LTV) and auction discipline.

Over the last two quarters, lending yields have been rising. Lending margins will remain over 10%, supported by the capacity to pass on rate hikes to clients. Profitability for large gold-loan NBFCs is projected to be comfortable in the range of 3.5-5 percent.

"The healthy profitability, leading to robust internal accrual, will continue to support growth without the need for any external equity infusion," stated Prashant Mane, Associate Director at CRISIL Ratings. As a result, gearing levels should remain reasonable at less than three times throughout the medium future."

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