BUDGET EXPECTATIONS: GOLD LOAN NBFCs

17 Jan 2023 , 08:22 AM

“Under the backdrop of macroeconomic challenges and risk of another covid wave, the expectations from budget 2023 would be to further set the Indian economy and businesses on a path of steady and sustained recovery. The broad focus areas to watch would be to see a push towards capex spending, support to investment activity/corporate India and also to support the most impacted sectors like MSMEs, small businesses. Specifically, the NBFCs in India are expecting the budget to provide relief in the form of exemptions, liquidity support and other measures to help them tide over the challenging times.

Taking a Gold loan against household jewelery is one of the most important funding source for MSMEs, small businesses, individual borrowers, women borrowers. Many farmers, small business owners/shopkeepers also resort to gold loans to meet their working capital needs. Gold Loan NBFCs serve the underserved segment or the bottom of the pyramid as this segment frequently borrows less than Rs 50,000 (equivalent to roughly 20 grams of gold as collateral) and the tenure of these loans is also typically for less than 12 months. Gold loans provided by NBFCs are not considered priority status and hence, specifically to gold loans NBFCs we expect restoring priority sector status to eligible gold loans, including microloans, loans to farmers and microbusinesses. We also hope that the Government will now permit the securitization of short-term gold loans without the minimum holding period (MHP) requirement but with a minimum retention requirement (MRR) of 20 percent of the book value of the loans being securitized/20 percent of the cash flows from the assets assigned.”