InCred Equities on Monday said while the basic assumption is that the RBI action on IIFL Finance Ltd is advantageous for peer non-banking finance companies that are having a similar business profile, there is a similar opportunity for banks, especially those with an interior reach such as State Bank of India (SBI) SBI and HDFC Bank Ltd.
InCred noted that gold loan disbursement growth for SBI and HDFC Bank stood at 65 per cent YoY in 1HFY24. The wide branch network of these banks enables them to penetrate retail gold loan markets in an aggressive manner, it said.
"We still believe that like the housing finance business, gold finance business will also be largely penetrated by banks against NBFCs, with a consistent rise in their market share through increased penetration and by offering lower interest rates," it said.
Banks are attracting small ticket size gold loan customers backed by their improved pan-India reach (improved branch network), lower interest rates as well as improved turnaround time by adopting digital means, InCred said.
"These banks are also tapping the customers based on their transaction history with gold loan NBFCs and seeking to transfer the gold loans to their banks," it said.
IIFL Finance case
The RBI barred IIFL Finance from giving any further gold loans with effect from March 4 based on certain observations made by the regulator over the loan-to-value or LTV offered, cash payment made by the company, etc. InCred said the ban will have a significant impact on IIFL’s growth and profitability as gold loans form 32 per cent of its total assets under management or AUM as of December 31, 2023, with an average yield of 19 per cent, which is high compared to other businesses of IIFL. This indicates a higher impact of over 50 per cent on its revenue and profitability.
"Though we are unsure about the resolution of the matter, considering the historic trend as well as slower growth post adapting to the regulations, we expect IIFL to post weak earnings growth in FY25," it said.