Ceasefire on gold loan Rate War; interest back to normal ‘high’

Ceasefire on gold loan Rate War; interest back to normal ‘high’

By CL Jose

Manappuram applies for 300 new branches

KOCHI/May26-2022: Gone are the days when gold loans were signed up for rates as low as 6.9 per cent against a nornal 21 per cent and upwards prevailed among the NBFCs historically.

The last two months saw the rates springing back to the erstwhile interest rate regime.

The gold loan companies seemed to have tired of the rate war that saw the leading players such as Muthoot Finance, Manappuram Finance and even some banks like Federal Bank offering loans at rates that perceived to be unsustainably low, ostensibly to grab market share during a period marred by low demand.

Most major gold loan companies had advertised certain gold loan schemes offered at rates even lower than their cost of funds, according to insiders.

Though these low rates were offered on certain repayment conditions generally thought to be a tough rider, there happened to be quite a large number of borrowers who religiously complied with those terms resulting in huge margin pressure for these companies.

Talking to businessbenchmark.news, counter staff at these companies said those low rates were withdrawn by March (2022) itself. “We had offered such rates only for several months, less than a year,” they added.

During the said period, Muthoot Finance, the largest gold loan company in the country, had offered gold loan even at 6.9 per cent; Manappuram too at 6.9 per cent; one could borrow from ICL at 8.3 per cent during that time.

Federal Bank, the largest Kerala-incorporated bank had also jumped on the bandwagon, offering gold loans at 6.99 per cent, but with an intelligent catch in the name of ‘processing fee’, a tool capable of pushing up the effective borrowing rate substantially, depending on the size of the loan – lower the loan size, higher the effective borrowing rate.

Acknowledging the rate war that prevailed in the market until a few months back, VP Nandakumar, the CEO and managing director of Manappuram Finance said, “In gold loans, we were faced with certain challenges arising from intense price competition amongst the NBFCs which prevailed for much of the year, and this had begun to affect our margins.”

He added that his company took a conscious decision to steadily withdraw from the price war, notwithstanding its short-term impact on growth.

He also said he had discussed about the rate war with some of the other players, “and some of them including a large player, have already toed in our line.” He said Manappuram’s gold loan disbursal rate now would be 21 per cent.

It’s a fact that henceforth there won’t be room for any low-rate regime. On the one hand, RBI has already hiked the repo rate and is said to be set for another hike in the forthcoming policy meeting, and on the other, the demand for gold loan has seen a gradual uptick during the past more than 6 months.

A call to Muthoot Finance seeking the details of current gold loan rates was responded by stating, “Our lowest rate is 11.9 per cent; the rates like 6.9 per cent is a history now as we have withdrawn such rates in March itself.”

Federal Bank also said they didn’t have such low rates and the current lowest rate began from 9.4 per cent and of course, with their ‘signature’ processing fee of Rs750 plus GST annually. This could go up with the size of the loan; for example, if the loan amount is above Rs2 lakh the processing fee will be Rs1200 plus GST.

South Indian Bank’s (SIB) rate is relatively low in the market, at 7.5 per cent, but with an appraisal charge of Rs250 plus GST on each packet, the detailes of which, they said, need to be checked with the respective branch.

Manappuram applies for 300 branches

Manappuram CEO said the company has approached Reserve Bank to open around 300 more branches. “Our application has not been considered because it’s from a gold loan company,” he said.

He added that the company will open branches according to the RBI approval. “Now I am not in a position to tell you how many branches; all depends on the RBI sanction.” Nandakumar said while briefing the analysts on the FY22 financial performance of the company.

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