Gold loan NBFCs need to be given access to credit

The economy is on the path to recovery due to positive sentiment and bank credit growth, despite the recent increase in infections due to Omicron.

In January 2022, the RBI monthly bulletin shows a holistic scenario with the observation that Bank credit growth is indicating signs of a gradual recovery, led by the retail segment, although flow of credit to lower-rated corporates remains hesitant. The finding puts the focus on the role NBFCs have been playing and the challenges they have been facing in fulfilling credit requirements for MSMEs, small businesses and individuals.

The NBFCs have been specialized in gold loan NBFCs that serve the cash and liquidity needs of people from urban, semi-urban and rural areas.

Gold loan is a tool for banks to meet their Priority Sector Lending PSL requirements. With a growing presence, faster loan processing capabilities, gold loan schemes of varied tenures, doorstep availability of gold loans, digitally-enabled solutions, etc. The NBFCs have a strong market presence.

Gold loans from organised players send out a message of inclusive growth for various market segments.

According to an estimate, the organized gold loan is currently valued at Rs 4,149 billion and expected to grow at a 3 year CAGR of 19.5% by FY 2024, to reach Rs 7,557 billion.

The ability to access diversified low-cost funding sources is a key factor in the growth of gold loan NBFCs.

The budget needs to propose measures to ensure adequate liquidity in the organised gold loan segment so that it can meet the credit requirements of individuals and the working capital requirements of entrepreneurs.

The government needs to make sure that the gold loan NBFCs have access to credit so they can focus on growth.

NBFC can claim Input Tax Credit on inputs, inputs services or capital goods at a fixed rate of 50% on all of its credit, as per section 17 of the CGST Act. The rate can be raised to at least 75%, which will bring down the cost of lending.

NBFCs below a certain threshold can be exempted from this section.

The efforts to increase market outreach and market penetration by strengthening online gold loan service capabilities will be intensified by the gold loan NBFCs going forward.

Instant gold loans require a strong digital backbone to offer gold loans at the doorstep of the customer. They need to invest in acquiring digital assets, building IT infrastructure and initiating skill development of the human capital.

Gold loans of small ticket sizes can be given a PSL tag to increase credit availability. The budget can propose measures to bring the agriculture gold loans provided by NBFCs under the interest subvention scheme with proper checks and audits.

There are opportunities to make gold loans accessible to a larger and diverse segment of borrowers, as a result of a co-lending partnership between banks and gold loan companies.

The goal is to serve the underserved segments of borrowers by leveraging each other's strengths. The government needs to provide the necessary policy support to boost such collaborations.

The government is aware of the role of the NBFCs in facilitating financial inclusion by making credit accessible and immediately available to the people. The upcoming budget should acknowledge their role and motivate them by proposing growth-focused measures.

Indel Money, Executive Director, is the author of Indel Money.