Amit Pathak | Sharekhan Education<\/h3>\n

Gold Finance Companies: A bright future<\/p>\n

A Gold Loan is a secured loan wherein the borrower pledges gold as collateral to obtain the loan. Such loans are typically short-term in nature with a tenure of 6 months to 1 year. Gold loans are highly secure and liquid assets that can produce superior returns with minimal credit losses. In India, people have an emotional attachment to their gold ornaments. So, during financial stress, people prefer pledging their gold ornaments as collateral and getting a short-term loan rather than selling their gold. Indians hold around 14% of global gold at around 27,000 tons. Pledging monetizes about 20% of it currently. Analysts estimate that over the next five years, this figure could increase to 25%. The Gold Loan sector is expanding gradually with an increasing demand for credit from individuals and small businesses.<\/p>\n

Players in goal loan sector:<\/h5>\n

The unorganized players in the industry hold around 65% market share, with organized players like banks and NBFCs having a 35% market share. Organized players are gradually gaining market share as they offer a lower rate of interest, compared to moneylenders and pawn brokers, quick disbursement, flexible terms of payment, and perceived safety of the jewelry. We expect the organized segment to be 45% of the market over the next five years.<\/p>\n

The relatively low regulation of the gold loan sector in India represents a significant advantage from a growth perspective.\u00a0Within the organized segment, banks and NBFCs operate under different dynamics. While banks mainly focus on lower interest rates and higher ticket sizes of loans, NBFCs focus on customer service, quick disbursement, flexible repayment options, and minimal documentation. Against the backdrop of significant under-penetration of the formal sector, we believe there is ample room and opportunity for all players, including banks, NBFCs, and fintech , to co-exist and grow over the long term in the gold loan business.<\/p>\n

About Muthoot Finance:<\/h5>\n

Muthoot Finance is a credible and strong player in this industry. The company is a leading gold financier in India with 4600+ branches.
\nThe company recently received approval from RBI to open 150 new branches. Its main focus is on the high-yield low-ticket segment, and its low-rate teaser portfolio has been reduced. The company is known for its strong management pedigree and client retention ability. Operating leverage and increase in yields could increase its RoA\/ RoE to 5.7%\/ 18% by FY25E from the current 4.9%\/ 17.8%, respectively. The company is estimated to register a 10% CAGR in AUM over FY23-25.<\/p>\n

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