No impact of price fall on gold financiers: AGLOC

Association Of Gold Loan Companies (AGLOC, India) on Monday said a 15-20 per cent price fluctuation in gold prices would not have any significant impact on the gold loan portfolios of member companies as they have already factored such fluctuations in the business model.

AGLOC had taken feedback from its members on current development of falling gold prices and its impact on their loan portfolios.

The association took a stock of the situation with members following the heavy fall in prices over the last fortnight. From a high in the Rs 33,000 region for 10 grams, the price plummeted to Rs 25,680 last week and is at Rs 26,750 level today, 20 per cent down.

The price fall has led to a slew of analyst reports, most of them sounding concerned for the gold loan players .

Investors have also turned cautious , as there has been heavy selling in the stocks of gold loan financiers.

"Though gold price is an important factor in gold loan business, the business model should not be misunderstood as a business of financing of gold bullion or shares wherein mark to market valuation could affect the repayment behaviour of the borrower", AGLOC President George Alexander Muthoot said.

"The gold loan companies are majorly lending against household jewellery where the impact of such temporary fluctuations on the business model are minimum. These loans are of short duration of 3-6 months. Compared to the disbursements, NPA levels are low," he said.

Most of the companies have majority of their branches in semi-urban and rural areas and their loan book consists primarily of loans of ticket size below Rs 1 lakh.

Hence probabilities of defaults are low inspite of fall in gold price. The gold loans companies have a system of regularly calling up their borrowers and reminding them about the dues on the loan, Muthoot said in a statement here.

The companies extend a monthly interest collection target every month to all its branches which ensures in maintaining regular interface with customers and promotes prompt repayment habit among the borrowers, he said.

AGLOC has asked member companies to review their existing collection mechanism and further strengthen it. There should be regular monitoring of overdues and high loan to value loan accounts. Companies should auction defaulted and abandoned loan accounts with due compliance to fair practice code stipulated by RBI, he said.

AGLOC has reduced the maximum lending rate in the light of fall in gold price. Members confirmed that loan demand continues to be robust inspite of reduction in amount lent per gram of gold. It is also noticed that there is regular redemption of earlier loans sanctioned at higher amount per gram of gold.

AGLOC was closely monitoring the gold price movements and would advise its members of any further change in the maximum rate of loan per gram of gold, he added.