The report indicates that growth trends are visible as June saw a 12% increase in disbursed loans compared to the average monthly loans in the previous quarter.
Excluding one major player, growth is 23% above the industry average.
NBFCs lead the distribution of gold loans
Non-banking financial companies (NBFCs) have taken the lead in distributing gold loans, holding 90% of the total assets under management (AUM) in the sector, the report said.
The increase of gold prices has been the main driver of growth gold loan NBFC.
These companies are well positioned to manage the risks associated with gold price fluctuations, with most maintaining a loan-to-value (LTV) ratio of 60-65%.
This means that companies only disburse loans equivalent to 60-65% of the value of gold based on the customer profile, minimizing their exposure to gold price declines even after government import duty cuts.
Impact of RBI cash lending restrictions
However, CRISIL Ratings also noted that the Reserve Bank of India’s (RBI) recent directive on cash disbursements could have some impact.
The RBI has recommended that gold loans above ₹20,000 should not be disbursed in cash but through banking channels.
Previously, NBFCs provided 95% of gold loans in cash for customer convenience.
Moving toward digital disbursements could impact the loan issuance process for new customers.
Who should consider a gold loan and how?
Gold loans They are ideal for people who need quick access to funds without selling their assets.
These loans are secured, which means they typically have lower interest rates than personal loans.
However, it is important for borrowers to understand the terms, especially the LTV ratio, to ensure they do not take on too much debt and risk losing their gold in the event of default.
Before opting for a gold loan, borrowers must:
Evaluate interest rates: Compare rates across banks and NBFCs to find the most competitive deal.
Understand the LTV ratio: Consider the percentage of the value of the gold you are borrowing against and how it affects your repayment.
Repayment plan: Make sure you can repay the loan on time to avoid high penalties or loss of gold.
Prefer digital channels: With new regulations, moving towards digital payments will streamline the process and keep you within legal limits.
Gold loans can be a smart option for short-term financial needs, but careful planning and understanding the terms are crucial to making the most of this growing trend.
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