“Teaser rate schemes offered at 0.57% could be withdrawn across both Muthoot Finance and Manappuram Finance replacing such schemes with 1% for all ticket sizes above ₹10,000,” said Nitin Aggarwal, senior analyst, Motilal Oswal. “About 75%-80% of the customers who take a gold loan under such teaser rates are not able to make monthly interest payments and consequently end up moving into the higher interest-rate slabs.”
Companies believe that while teaser rates could be rolled back, these lower interest rate schemes are not impacting asset quality.
“Teaser rates are introduced by many banks to acquire new-to-bank customers from other banks/NBFCs and unorganised sectors and these offers are only a short- term strategy adopted to increase the client base,” said Narendra Dixit, head – retail banking, CSB Bank. “Given the high liquidity in the system, such teaser-rate loans are normally of shorter tenor, and thus don’t impact the overall gold loan portfolio.”
With monthly interest repayments, gold loans are currently available at interest rates of 6.9% a year, for ticket sizes above ₹2 lakh and loan to value ratios of 70%. In bigger markets such as Kerala and Tamil Nadu, loans are available at 6.5% for ticket sizes above ₹ 1 lakh.
“There is huge demand for gold loans and more and more customers are adopting gold loans as means of getting easy credit; we expect to expand at a healthy rate of 20-25%,” said Saurabh Kumar, head-gold loan, IIFL Finance. “With the markets opening up, business expansion, overall repayment and collection efficiencies have improved consistently over the past few quarters and should remain so unless there is another wave of the pandemic.”
According to an analysis by Motilal Oswal, balance transfers in gold loans have been relatively elevated during the past six months, particularly so in the ₹3 lakh and above category.
Gold prices have surged sharply in the recent past, reaching an all-time high in March as investors sought safe havens. But analysts tracking the segment expect the yellow metal to cool off as the Ukraine situation normalises.
“Event-based price fluctuations do not impact the overall gold loan franchise,” said Dixit. “Currently, the major impact of gold price movement is due to the geo-political instability, which has resulted in this sudden spike.”
