Finance News : The gold loan segment may face a fall in this quarter

From last year till the first quarter of the current financial year, the gold loan category in India has increased steadily. But will the forthcoming quar quarter see the same growth trend – keeping in mind the changed loan-to-value (LTV) and current gold prices? This requires detailed discussion.


It is still difficult to give a definite idea about sectoral growth but it can be assumed that lower LTV will negatively affect the gold loan segment. LTV is identified as the ratio of the loan to the value of the property purchased. The RBI has already reduced its pre-epidemic LTV ratio from 90% to 5%. The central bank had earlier done 90% in August 2020 to provide relief to the people. It has encouraged the sector ever since.

But now people are more interested in selling their gold ornaments to get the full price. If they mortgage their gold, they may not be able to repay the loan. Financial pressures can force people to sell gold instead of gold loans because now it will not be more than 75% of its value.

gold loan segment

The price of gold is important

Since August, gold prices in India have fallen sharply due to employment data in the United States and expectations of higher interest rates from the US Fed. Even in the previous month, gold prices were not significantly higher. Thus, the price of gold starts to fall and affects the gold part. People are now more interested in actually selling their gold instead of keeping it for a gold loan because it will be more profitable immediately.

The current economic situation is also affecting the new lending for gold. In addition, some customers are unable to redeem their gold, which may later disrupt the sector. Even if the gold loan sector as a whole increase compared to 2020, the pace of growth may slow down due to the mentioned reasons.

Example: Manappuram’s business profit has declined

Malappuram, a leading company in the sector, saw poor consolidated profits in the June quarter that failed to encourage investors. The finance company auctioned gold worth Rs 10,000. 404 crore in Q4FY21 crore in the previous quarter – which is related.

The company’s gold book sales fell 13.3% in the June quarter. Their total subscriber base has dropped to 200,000 and the company expects the total subscriber base to grow by only 1% during FY22. Malappuram has also reduced its estimate of the average ticket size. Their gold assets under management (AUM) for the June quarter fell 8.8% year-over-year. 16500 crore to 17700 crore

Commenting on the collapse of the gold loan segment, Muthoot Finance managing director George Alexander Muthoot told a leading English daily: Noticing a 15% growth. “- It certainly doesn’t show aggressive expectations.

The company may have taken cautious steps as the price of gold in India is slowly declining. Due to the low price of gold, people may lose interest in recovering their deposit gold. This will lead to a stressful position for any financial institution. So, to risk himself, Manapuram could auction off their assets.

In the long run, as the RBI thinks more about this sector and gold prices change again, the situation may change. But the current situation and the recovery economy will certainly not be the preferred environment for the field of gold loans.

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