SFBs, Nidhis may eat into gold loan NBFCs' market

Chennai: Rising gold prices have once again revved up the gold loan market and new trends are emerging in the space. Small finance banks (SFBs) and Nidhi companies are likely to eat into the market share of gold loan NBFCs. However, the expanding gold loan space will see the NBFCs capturing newer markets using digital products.

According to KPMG, the gold loan book size of SFBs and Nidhi companies is steadily increasing and may start eating into the market share of specialised gold loan NBFCs. Fincare, Equitas and Jana are some of the SFBs and MABEN, KPB, SJI and Chirag Investment and Finance are a few Nidhi companies which have recently become aggressive on the gold loan front.

SFBs have access to low-cost funds through deposits, giving them an edge over the traditional gold loan NBFCs. Similarly, Nidhi companies are growing their customer base. The maximum interest that can be charged by Nidhi companies has been capped at 7.5 per cent above the average deposit rate. Additionally, Nidhi companies offer savings and recurring and fixed deposits to customers at a higher interest rate compared to banks.

However, gold loan companies too are not in a disadvantageous position as the gold loan market is expected to reach Rs 4,617 billion by 2022 at a five-year compounded annual growth rate of 13.4 per cent.

In FY19 gold loan companies were aggressively expanding their branch network across the northern and eastern states, where the market penetration was low. Unlocking new geographies, such as the Northeast, will also add to the growth story.

Moving forward, these companies are expected to focus on optimising their asset utilisation and leveraging their existing branch infrastructure to maximise the branch-level AUM and customer outreach, says KPMG.