Gold loan firms feel left out of monetisation

 A month after the government released the draft guidelines for the gold monetisation scheme (GMS) intended to monetise the 22,000 tonnes of the metal lying idle with households and religious trusts, gold loan non-banking finance companies (NBFCs) are not hiding their disappointment that the scheme has defined no roles for them.

As of now, only banks are expected to participate in this programme. But gold loan companies have indicated that they would be glad to participate, if permitted. Talking to Deccan Herald, Manappuram Finance Managing Director and CEO V P Nandakumar said, “The scheme indicates the resolve of the government. At the same time, we feel it is better seen as a promising start rather than an end in itself.”

In his view, the scheme does well on two counts. “First, the minimum quantity for investment has been brought down to 30 grams, making it feasible for middle class households. Second, it proposes to pay interest valued in gold which means it becomes inflation proof.”

He, however, notes, “The scheme has flaws too. For example, the proposal to use only 350 BIS certified hallmarking centres as purity testing centres means that the scheme will have limited reach, at least in the initial years. Besides, no role is envisaged for gold loan NBFCs which possess gold appraisal skills dispersed throughout their extensive branch network.

The impression we get is that in practice, the scheme may involve hassles for customers as they travel between banks and purity testing centres. Ideally, customers should be able to avail the scheme at one place. This can be done easily if gold loan NBFCs are involved.”

Another gold loan financier, Muthoot Finance, also welcomed the scheme, but was not sure about the requirement to melt the gold. Muthoot Finance Chief General Manager K R Bijimon said, “The government’s intention and purpose is good. But melting the ornaments with sentimental value for monetising may not be appealing for most women folk who are the real owners. We are already monetising the gold through gold loans without melting it. Today one lakh customers walk into our branches and we have assets under management (AUM) of approximately Rs 25,000 crore.”

When asked how the scheme will help the economy, Nandakumar said, “A successful monetisation scheme would enable the country to cut down on import of gold and the current account deficit, leading to a stable currency.”

Agreed Geofin Comtrade Research Analyst Vaibhav P Chudasama, “Definitely this will not impact immediately on the gold import levels, but going forward this could be a major factor in world gold demand.”

Dismiss adverse effect

But gold loan NBFCs dismiss that the scheme would adversely affect their business. “We do not foresee any impact on our business and customers. This monetisation scheme targets those who have surplus gold which is kept locked up in safes and vaults. In contrast, the gold loan business targets that segment who have limited savings in gold and who occasionally need to draw money against it,” Nandakumar said.

India Infoline Finance CEO Rajashree Nambiar too dismissed such fears. “Loan against gold is a loan product where the owner of the gold jewellery can avail loan against it. The Gold Savings Account is an investment avenue wherein the owner earns income on deposited gold. As these are two diverse products, there seems to be no material impact on the existing loan against gold product of banks/NBFCs.”