Driving Factors Behind the AUM Growth of Gold-Loan NBFCs in India

Updated On : Feb 2024

In the dynamic landscape of the financial sector in India, Non-Banking Financial Companies (NBFCs) specializing in gold loans have witnessed substantial growth in their Assets Under Management (AUM). This growth can be attributed to several factors that reflect the resilience and adaptability of these financial institutions.

The three key factors contributing to the AUM growth of gold-loan NBFCs in India are:

1. Customer Retention Strategies:

One pivotal factor driving the AUM growth of gold-loan NBFCs is their adept ability to retain customers. The industry has maintained a steady customer base, a testament to the strategic measures implemented by NBFCs. Offering online gold loans has provided customers with convenience and accessibility, allowing them to initiate and manage loans from the comfort of their homes.

Doorstep services have further solidified customer relationships, providing a personalized touch to the lending process. Marketing strategies targeting inactive customers showcase the industry's commitment to not only acquiring new clientele but also nurturing existing relationships, ultimately contributing to sustained AUM growth.

2. Focus on Small and Mid-Size Loans:

The deliberate focus on catering to the segment of small and mid-size loans has been a key driver in maintaining a resilient market share of over 60%. Gold-loan NBFCs have strategically positioned themselves to serve the financial needs of this demographic, offering quick and accessible financing solutions. This focus has not only solidified their market presence but has also allowed them to adapt to the specific requirements of their target audience.

The emphasis on small and mid-size loans aligns with the financial realities and preferences of a significant portion of the population. By providing tailored lending solutions, gold-loan NBFCs have created a niche for themselves in the market, contributing to the sustained growth of their AUM.

3. Strategic Expansion of Branch Networks:

The third factor instrumental in the AUM growth of gold-loan NBFCs is the deliberate expansion of their branch networks. This expansion strategy has played a crucial role in increasing their reach and customer base. By establishing a physical presence in diverse locations, NBFCs ensure that their services are accessible to a broader demographic.

The expanded branch networks not only enhance customer convenience but also serve as a testament to the industry's commitment to financial inclusion. The outreach to new geographies aligns with the broader national agenda of promoting accessible financial services to every corner in the country.

Asset Quality and Growth Influencers:

From an asset quality perspective, gold-loan NBFCs have maintained a prudent approach by conducting timely auctions, effectively keeping credit costs in check at historically low levels of 0.2- 0.4%. This reflects the industry's commitment to maintaining the quality of their loan portfolios. The growth of gold-loan NBFCs is also influenced by fluctuations in gold prices. In fiscal year 2023, the sector experienced a notable rise of nearly 10% in gold prices. The correlation between gold prices and loan books highlights the industry's adaptability to market conditions and its ability to leverage price movements for business growth.

The AUM growth of gold-loan NBFCs in India is a result of their strategic initiatives and adaptability to evolving market dynamics. Customer-centric approaches, a focus on small and mid-size loans, and the expansion of branch networks have collectively contributed to their sustained success. Despite facing competition from traditional banks, gold-loan NBFCs have maintained resilience, supported by robust capitalization, effective risk management, and healthy profitability. As the industry continues to navigate challenges and opportunities, these factors will likely remain instrumental in shaping its future growth trajectory.

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