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Agility In Product Delivery And Innovation To Define the Growth Altitude Of Gold Loan NBFCs As NBFCs and banks have adopted a cautious approach while lending to protect their balance sheets, gold loans have emerged as the saviour for them to restart lives and businesses

By Umesh Mohanan

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The uncertain macro environment and the pandemic impact on lives and livelihoods have further strengthened gold's proposition as the most preferred and safest strategic asset over other asset classes. The price rally led by the safe haven status of gold has had a positive rub-off on the gold loan industry, as individuals, small business owners and MSMEs are opting to buy gold loans to meet immediate credit needs. As NBFCs and banks have adopted a cautious approach while lending to protect their balance sheets, gold loans have emerged as the saviour for them to restart lives and businesses.

As a result, gold loan companies have been witnessing robust growth in terms of demand and disbursal. As gold loans come with simpler credit eligibility requirements, it fulfils credit needs faster than other loan instruments. With increased gold price leading to higher LTV ratio, the gold loan industry can brace for a bigger demand wave. As per a recent KPMG research report, the gold loan market is likely to reach INR 4,61,700 crore by 2022 at a five-year compounded annual growth rate (FY18 to FY22) of 13.4 per cent. The growth projection is based on the massive household gold reserves which have been estimated to be around 25,000 tonne in volume terms and approximately INR 110 trillion in value. However, the market still remains underpenetrated, the KPMG research report says, as the total gold loans outstanding in the organised sector in 2019 are projected to be at 5.5 per cent of entire household gold loan holdings in India.

Gold as an asset has sentimental value and cultural affinity attached to it and people are not comfortable with the idea of selling gold jewellery. Therefore, the gold loan industry can expect incremental demand growth in this unprecedented time.

With the gold loan market becoming quite competitive thanks to the forays from other players including public and private banks, specialized gold loan NBFCs—the backbone of the organised gold loan segment—needs to further strengthen the delivery capabilities to increase market share and geographical reach. Here are a few ways which gold loan NBFCs can adopt to build stronger customer traction.

Rapid product innovation for building robust customer centricity: Gold loan NBFCs must innovate their loan offerings keeping the new normal demand trends in mind. The gold loan tenure is usually short-term in nature. However, customers end up paying higher interest while re-pledging the gold after the end of the tenure of 90 or 120 days. However, longer-tenure gold loans make re-pledging and paying higher interest rates redundant. Longer-term gold loans help individuals, MSMEs and small traders manage cash flow better in this time of pandemic. In addition, the customers with regular repayment track-record can also be offered additional unsecured loans.

Tech-enabled customer outreach: Because of the deep-rooted inhibitions and apprehensions, some people are still reluctant to walk into the nearest branch offices of gold loan companies to pledge gold. Instead, they go to local gold loan lenders who offer them privacy. NBFCs equipped with digital capabilities can reach out to those customers with a door-step loan delivery option. Thanks to application programming interfaces (APIs)—integration and digital adoption, the entire gold loan branch operation can be brought to a customer's doorstep with an on-field representative managing the on-boarding and pledging process.

Nurturing talents: The gold loan companies must undertake initiatives to lower the attrition rate to achieve operational efficiency and reduce recruiting cost. The companies need to offer competitive packages to retain and motivate talents so that their customers continue to get enhanced service standards. A trained and motivated workforce adds immense value to the service delivery framework.

With the growth in gold loan demand in terms of number, the demand pattern has also evolved. Customer expectations related to flexibility, convenience, confidentiality, etc., can be achieved if the approach is agile and responsive. As competition is set to intensify in the organised gold loan market, gold loan NBFCs must focus on enhancing adaptability to stay ahead of the curve.

Umesh Mohanan

Executive Director & CEO, Indel Money

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