The Covid-19 pandemic has exacerbated economic distress in the country. As income levels fell and businesses were affected due to economic slowdown and then the outbreak of the pandemic, gold loan companies have come to the rescue of people who faced acute distress and needed money in hand. Alexander George Muthoot, joint managing director of The Muthoot Group, which is market leader in providing gold loans, talks about the recent trends seen in the sector and says that gold monetisation has helped many individuals, families and entrepreneurs who wanted to restart their business after the lockdowns in a big way. Edited excerpts:
Did Covid-19 have any impact on borrowings against gold? What have been the latest trends on gold loans in recent times?
Covid-19 had its due share of impact on credit demand, particularly on banks and financial institutions, with many banks reporting low utilisation of credit. We, as category leader, have always educated the masses through various campaigns and initiatives to unlock the potential of their idle asset, that is gold. During the pandemic, a large section of the society realised that their idle gold could be an effective instrument for raising credit at short notice, with minimal documentation and least hassle. This realisation led to gold monetisation in a big way, which helped many individuals, families and entrepreneurs who wanted to restart their business after the lockdowns.
Gold prices were at an all-time high in July and August 2020, during early pandemic months, which further contributed towards good growth in the gold loan category as a whole. This highly secured and sought after lending product encouraged financial institutions to foray into this sector while others tried to strengthen their position in this category. Some new fintech players also entered the gold loan category.
Gold loan companies also aggressively marketed their products and leveraged the available opportunity. All these factors helped build a strong momentum in the gold loan industry, and we saw good traction in 2020-21. Our consolidated assets under management (AUM) grew by 24% and consolidated net profit grew by 21% during the same period.
Considering that there is still nearly 25,000 tons of gold in the form of household jewellery in India, there lies a huge potential ahead.
Is there any concern about repayment, as the pandemic has led to job losses and salary cuts?
As we all know, the impact of Covid-19 on our economy and society has been far reaching. The government and the RBI had announced certain measures to help industry and individuals, such as restructuring of loans and ex-gratia assistance to borrowers.
There certainly have been concerns about repayments across the board, and it is due to a combination of reasons. General sluggishness in the economy due to Covid-19 has certainly led to reduced economic activity. This has impacted repayments in some ways. Additionally, the reduction in gold prices has also impacted repayment patterns to some extent.
In our case, since the tenure of our gold loans is 12 months with no monthly payment obligations, our borrowers had enough time to recover from the impact of the pandemic and maintain their repayments on stipulated dates. We also offered interest waivers to needy borrowers. We could insulate almost 90% of our assets from Covid-19 and related impact.
Going forward, we do not see any major problem in maintaining satisfactory asset quality. Our easy to operate digital platforms for repayment of loan and interest amounts have been very well received by our customers. Approximately 25% of our collection is through digital channels, and we are scaling this up with our new digital offerings, such as repayments through our official WhatsApp channel and partnerships with companies like Paytm, PhonePe, Google Pay, etc.
What is the time period for which gold loans are availed?
We offer gold loans for a period of 12 months. However, a customer is free to liquidate their loan earlier without any prepayment charges. We have observed that customers normally liquidate their loans within eight to nine months. As per the RBI directives, we can lend up to 75% of the gold value pledged to us. Customers also have an option to pay the interest or principal amount at monthly intervals or any number of times during the life of loan. In fact, we incentivise customers who pay their interest at monthly intervals.
Given the omicron threat, what is the outlook on gold loans for this year?
The recent reports indicate that the impact of omicron is not very severe, and people getting affected are recovering within six to seven days with no need for hospitalisation. Unlike the lockdowns during first and second waves, the steps taken by Central and state governments to contain the spread have not adversely affected normal life of a majority of people. Hence for us, the momentum gained during last financial year is likely to sustain in the current year too. We are expecting a gold loan book growth of 15% in the current financial year.
