This is a golden period for the gold loan industry: Umesh Mohanan

In an interview with Mint, Umesh Mohanan, executive director and chief executive officer (CEO) of Indel Money, a Mumbai-headquartered non-banking finance company (NBFC), spoke about the factors driving the industry. Edited excerpts:

The gold loan industry is on a growth curve despite the pandemic. What are the key drivers?

Due to the inherent benefits of gold loan and the prevailing economic scenario, the gold loan sector is seeing strong demand and disbursal growth. The lower credit eligibility makes gold loans accessible to all. A gold loan is more effective in managing liquidity needs faster than any other loan instrument. As there is reduced availability of credit in the market, the demand for gold loans will see a further uptick, banking on higher loan to value (LTV) ratio. According to some assessments, the volume of household gold reserves is 25,000 tonnes and the value is approximately ₹110 lakh crore. Therefore, the growth horizon is quite broad for the gold loan sector

Several NBFCs are under the scanner for poor corporate governance and coercive lending practices amid the pandemic. How are you addressing these concerns?

We comply with stringent corporate governance standards. Despite being a 100% family owned company, just three members on the eight-member board of directors are from the family. The remaining five are renowned dignitaries and experienced industry professionals. For instance, the current Association of Mutual Funds in India CEO, a former deputy managing director of State Bank of India, a former principal chief general manager of the Reserve Bank of India and practising chartered accountants are part of our board of directors. Moreover, a team from KPMG has been appointed. The team functions as the CEO’s back office in our corporate office and carries out concurrent audits on procedures and processes. The proposals that are vetted by the KPMG team are tabled at meetings of the board of directors. One of the KPMG partners is always present in the board meetings as a special invitee.

What makes a gold loan NBFC succeed at a time when banks are aggressively entering the segment?

Gold loan NBFCs provide dedicated services to customers. But for banks, gold loans are just a part of its bouquet of loan products. Therefore, banks lack the focused approach to gold loans compared to that of gold loan NBFCs. Moreover, gold loan NBFCs have deeper market penetration, especially in rural areas, which banks don’t cover. Furthermore, gold loan NBFCs offer superior service efficiencies such as a quicker turnaround time, attractive schemes, convenience and faster disbursals. When it comes to innovation in gold loan products, NBFCs are superior to banks. Our long-tenure gold loan is one such example of a loan product innovation that has transformed the usual gold loan narrative.

Will the intensified competition in the organized gold loan segment alter the scenario?

Organized gold loan segment makes up just 5% of the entire gold loan market. However, as the competition intensifies, the organized gold loan segment will expand into the unorganized gold loan segment. The organized gold loan market is growing banking on increasing market penetration and geographical presence. As a result, both growth horizon and competition are increasing in the organized gold loan segment. Gold loan NBFCs will continue to dominate, thanks to their service efficiency, flexibility in product offering and customized method.

You recently launched the first ever long-term gold loan with a two-year-tenure in the country. How has the response been?

The response has been fantastic as more and more business owners and household members are looking at gold loan as a normal source of arranging funds. This mindset was absent in the past. There are abundant long-term loan needs that gold loan NBFCs can leverage.

What are your plans for the company?

Our plan is to expand in Andhra Pradesh and Telangana by FY20-21 and in FY21-22. We also plan to enter Maharashtra and Gujarat with our conventional brick-and-mortar format. We are planning to set up a support hub in all major cities to spread our doorstep gold loan facility, which functions on the backbone of virtual branches. We are planning to launch pre-paid cards. Our disbursals are fully automated as we have tied up with banks through API. Existing customers can use our portal or app to extend the LTV of the gold pledged with us. We’ll set up an automated process in which customers can manage the credit line according to her/his preferences. We follow a hub-and-spoke model in which the hub consists of 5-6 virtual branches. We have plans to launch the model majorly in tier -1 cities before setting up our brick-and-mortar presence in those cities. The upper segments of MSMEs are reluctant to visit gold loan company branches during the gold appraisal process. They feel more comfortable if we take the branches to their homes through an online gold loan facility. We are also planning to explore various options such as capital injection by the group holding company, raising funds through public NCDs and PE/VC placement.