The classical Bollywood blockbuster Mother India (Mehboob Khan, 1957), was one of many Indian movies of that era that exposed the ugly realties of Indian society, especially feudal dominance, repression of destitute, and exploitation of women. But made Mother India a classic was the courage and grit of a destitute woman, who stood not only against the oppressor but also against her own son who decided to rebel and take the path of crime and violence. One particular instance from the movie that has stuck to millions of minds is about the pledge of gold bangles by the protagonist Radha (played by Nargis) to the unscrupulous money lender Sukhi Lala (played by Kanhaiya Lal) to repay an old debt. In the end, the rebel son of Radha, Birju (played by Sunil Dutt), attacks Sukhi Lala’s household and forcibly takes the bangles and kills Lala to avenge the atrocities done by him to his family, especially his mother. The pair gold bangles thus became the symbol of feudal repression, women exploitation, rebellion by poor and oppressed, and revenge.
Traditionally, gold has been an important means of social and
financial security for rural and semi urban population in India, due to poor
availability of banking facilities. The success of financial inclusion program
in past one decade (especially in past 6years) has however changed the things
in many respects. Gold has emerged as key collateral for working capital and
emergency credit in past one decade. Though still there is no dearth of
exploiters like Sukhi Lala and oppressed like Radha in hinterlands, but
conditions have improved materially from 1950s and 1960s. Especially in past
one decade, the business of gold loans in organized sector has recorded
remarkable growth. Lower rates, easy access, convenient and fast disbursal has
made gold loans popular amongst the middle and lower middle class households.
A recent report published by World Gold Council (WGC)
highlighted how gold loans are helping Indian households to weather storms,
like global financial crisis (2008-10) and Covid-19 (2020).
The following points highlighted in the report are noteworthy
for investors, especially the investors in gold loan companies.
·
As of 3Q2019, 52% of investors owned some form
of gold, with 48% having invested in the 12 months preceding 3Q2019. The
average Indian household holds 84% of its wealth in real estate and other
physical goods; 11% in gold and rest 5% in financial assets. Dependence of
rural households in physical assets such as gold has been a result of not just
love of gold, but also poor banking penetration till lately.
·
Digitalisation of economy and e-commerce
penetration are fundamentally altering the age-old scenario, so an element of
option beyond gold and real estate in asset portfolio is setting in – though
this may take time and may need some catalyst to show tangible results. As of
now, love for gold and a window to accumulate wealth without much of the
disclosure that financial assets ensue, keeps gold central in rural wealth.
·
Gold loans are popular in both urban and rural
areas. They compare favourably with personal loans regarding quicker processing
time, no requirement of income proof or prior credit history, and low
processing fees. With such advantages, the overall gold loan market has grown
from INR 600bn (US$12.6bn) in FY 2009-10 to INR 9,000bn (US$122.6bn) in FY
2019-20, a compound annual growth rate (CAGR) of 31.1% over the last decade.
·
Unorganised gold loan market still accounts for
65% of the gold loan market but organised gold loan market has grown with the
market penetration and geographical expansion of financial service institutions
and financial inclusion.
·
Gold jewellery kept as a collateral against gold
loan by top three gold loan NBFCs (Muthoot Finance, Muthoot Fincorp and
Manappuram Finance) totalled 298.8t at end of FY20. The combined gold holdings
of these three NBFCs would rank in the top 20 gold reserves of central banks
and supranational organizations.
·
Gold loan NBFCs became a de facto choice of
consumers during 2006-10 due to their convenience, quick disbursals of loans,
and lower interest rates. The growth was also supported by rising gold price
during the period.
The organised gold loan market has opportunity to grow with
collateralised gold holdings of 1,280t, equivalent to approx. 5% of the total
outstanding gold stocks in India. The organised gold loan market can continue
to provide lending against gold jewellery both to individuals and small
businesses, potentially helping to meet their financing needs. Technology has
also become a key enabler in spreading the reach of gold loan business,
increasing the penetration of financial inclusion through gold loan industry.
The digital offerings in the form of online gold loan (OGL) scheme had become
popular since inception.
·
Technology can become a key enabler in the
growth of the gold loan market in India. Gold loan NBFCS have already embraced
online gold loan scheme which has increasingly become popular since its launch.
But more can be done in this area with launching of self-servicing kiosks in
branches and public location, launch of gold valuation machine. e-KYC and loan
disbursement and repayments using e-wallets and prepaid cards.
S&P expects NPAs to rise
The rating agency S&P Global, has cautioned that the Indian
bank NPLs will rise to 10%-11% of gross loans as forbearance is phased out. The
rating agency however believes that Top-tier private sector banks and finance
companies have sufficient capital buffers but public sector banks would need
more capital to tide over the crisis.
“India financial institutions will likely have trouble
maintaining momentum after the amount of new nonperforming loans (NPL) declined
in the first half to Sept. 30, 2020. S&P Global Ratings believes
forbearance is masking problem assets arising from COVID-19. With loan
repayment moratoriums having ended on Aug. 31, 2020, we expect to see a jump in
NPLs for the full year ending next March.”
Monetary policy at critical juncture
