Motilal Oswal: The Gold Rush - High Return Ratios, Least Asset Quality Risk, Tailwinds To Growth
A safety deposit box key rests on a gold bar weighing 12.5 kilograms in the precious metals vault at Pro Aurum KG in Munich, Germany. (Photographer: Michaela Handrek-Rehle/Bloomberg)

Motilal Oswal: The Gold Rush - High Return Ratios, Least Asset Quality Risk, Tailwinds To Growth

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Motilal Oswal Report

The organized non-agricultural gold finance industry has grown over the past 12 years from a small base of Rs 250 billion in 2009 to approximately Rs 2 trillion currently.

Unique aspects of this industry -

1. only approximately 35% of the industry is formal; of this, approximately 40% is with non-banking financial companies, and

2. three specialized Gold Financiers—Muthoot Finance Ltd., Manappuram Finance Ltd. and Muthoot Fincorp account for 75% plus of the NBFC pie in the gold loan segment.

Specialized gold loan NBFCs have inherent advantages over NBFCs operating in other product segments. These include -

1. less competition from banks given the niche expertise required,

2. low asset quality risk due to the 75% loan-to-value cap and highly liquid collateral,

3. strong asset and liability management position with short loan tenures, and 4. low balance sheet leverage.

Gold loan financiers have created a strong proposition versus banks with quicker turnaround time, niche customer base, easy accessibility of a large branch network focused only on gold loans and flexible repayment schedules.

Despite the higher interest rate charged, gold financiers managed to gain 300 basis point plus market share over the last five years in the organized segment due to these advantages.

Click on the attachment to read the full report:

Motilal Oswal Gold Finance Sector Update.pdf

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