NBFCs auction record volume of pawned gold

Mumbai: Gold loan-focused non-banks like Manappuram Finance have auctioned a record 1 tonne, worth Rs 404 crore, of the pawned gold in the last quarter of 2020-21, indicating deepening distress among the public due to the pandemic and have warned that banks are headed to an NPA crisis from September quarter when gold loans with one-year tenure mature.

During the first wave of the pandemic, among the many measures the Reserve Bank announced to alleviate the financial distress of the public, one was to allow banks to offer 90 per cent of the value of gold in loans. This helped millions of households, as it came amidst a massive spike in gold prices, which had crossed Rs 5,600/gram in the peak of the pandemic last year.

Following this, public sector banks widened their gold portfolios, helping the organised industry touch Rs 2 lakh crore in FY21, up from a tad over Rs 1.6 lakh crore in FY20, according to industry data.

Of the gold loan industry of over Rs 6 lakh crore, 75 per cent are with unorganised players/petty moneylenders and organised players control only 25 per cent or Rs 2 lakh crore, of which Rs 80,000 crore are with NBFCs and the rest Rs 1.2 lakh crore are with banks.

We've auctioned a record 1,000 kg of pawned gold in the March quarter, as against just Rs 8 crore during the previous three quarters. But for us only the quantum is a high and not auctions as we auction every month, since our loan tenure is for three months only, VP Nandakumar, Manappuram managing director & chief executive, said from his Thrissur headquarters.

For Manappuram, which auctions gold every month as it offers gold loans only for a three-month tenure unlike its peers which give 6-12 months tenure and banks invariably offering for one-year, it had auctioned just Rs 8 crore during the first three quarters of the fiscal, taking the total recoveries from auctions to Rs 412 crore. What worries Nandakumar, however, is the bubble that was built last year when the prices were at record high and the banks which have lent at 90 per cent LTV and since then prices have been falling.

Banks and most other NBFCs won't report asset quality issues in the March or June quarters as they have one-year loans. Their problems will crop up from the September quarter onwards, he warns.

Banks, mostly public sector ones, are in more trouble due to their higher LTV of 90 per cent. For banks as much as 90 per cent of their gold loan books is labelled as priority sector lending, Nandakumar says. However, none of the leading private sector banks which declared their Q4 earnings hinted at any asset quality issues in their gold loan books.