With many banks — especially private banks — curtailing their personal loan portfolio and gold prices soaring to new highs every week, finance companies have started moving into the space vacated by banks with their gold loan offerings. Finance companies have witnessed 80-100% growth in their gold loan business as borrowers have increasingly started looking at gold jewellery as a collateral for loans.

“The curtailing of personal loans by commercial banks might have helped NBFCs engaged in disbursement of gold loans. They have carved out a niche in the financial services arena and specialise in that particular line of business and derive their strength from hassle-free and expeditious disbursement of loans,” said R Manmohanan, chief executive officer, Muthoot Capital Services Ltd. The bullish price trend in gold has added to the comfort level of lenders as they find it very convenient as a collateral.

The Muthoot Group, which claims to be the country’s largest lender against gold claimed that the company would increase its gold loans portfolio to over Rs 4,000 crore in the next 2 years. “As banks are very cautious on their business front, they do not take any unwanted risks on defaulters. On the other hand some companies specialised in this business target only rural farmers and needy costumers,” said K Ramakrishnan, chief executive of the Indian Banks Association.

VP Nandakumar, chairman & managing director, Manappuram Group of companies said, “We have seen the maximum growth in last 3-4 months. At present we have a healthy loan book of over Rs 2,000 crore and till September 30 this year it was Rs 1728 crore. If the current trend continues, we hope to achieve over 80-100 per cent growth in 2-3 years’ time.” Even commercial banks have now seen the potential in the gold loan business. “Our gold loan book has gone up to Rs 600 crore, taking 23 per cent growth till the end of the second quarter. We expect 40 per cent growth at the end of this financial year,” said S Sridhar, chairman and managing director, Central Bank of India. Private sector lender HDFC Bank has witnessed its business in this segment grow by over 60 per cent year-on-year.