The organised gold loan segment will be a potential vehicle for India’s social transformation as significant sections of the rural poor continue to have poor access to banks, Kosamattam Finance, a leading Kerala-based NBFC, asserts. Since 75 per cent of the gold loan market comes from the unorganised sector, Mathew K Cheriyan, the company’s Chairman and Managing Director, emphasises the need for a radical shift in the regulatory approach — from one of tolerance with multiplicity of hurdles to that of facilitation and active promotion.
Gold loans, according to him, can be considered a source of timely credit to the rural masses, especially farmers. A useful beginning can be made by not treating this sector on par with local moneylenders or pawnbrokers. It will help if gold loans are not clubbed with other NBFC lending when prescribing regulatory capital, he adds. Excerpts from the interaction:
What kind of regulatory changes would you like to see in the gold loan business? How do you see the sector evolving in the years to come?
We believe that regulatory changes have been at their peak during the last two to three years. The most stringent was LTV (loan to value) and conditions on raising working capital through private placement. However, the regulatory authorities paid heed to our requests and took a lenient view in that respect.
Going forward, we welcome regulatory changes that can further strengthen and stabilise the industry and make us play a more effective role in ensuring financial inclusion and helping to uplift the poor.
While Indians have huge investments in gold, they also diversify their investment activities in line with the growing financial markets. But, at the same time, they are hesitant to part with their gold ornaments and hence, people will want to leverage their investment in gold for other economic activities. Here comes the relevance of gold loan business.
You have mentioned that the regulatory environment should not be one of just tolerance and placing multiple hurdles but become more facilitative. Can you elaborate?
Some stringent regulatory measures put in place in the last three years had affected our pace of growth. But we saw these changes as an opportunity and took a cool, tolerant approach, and we have come out successful by upgrading our entity.
We are, in fact, grateful to the regulatory authorities for the timely corrective measures that they have brought into the system while understanding our practical difficulties.
You want to be treated differently from pawnbrokers and other moneylenders. Why is that? Isn’t the nature of business similar? Lending against pledged gold?
We are guided by stringent RBI norms. We follow the fair practice code as published on our website and at our branches. We try to keep the gold loan fully transparent and simple for the customer with proper documentation to protect their interests. Our gold loans are 100 per cent insured, stored in strong rooms of prescribed quality and in premises having CCTV surveillance and alarms.
Being a debt-listed company, we have to, in a timely manner, comply with the requirements of SEBI, the Companies Act, etc. Besides, direct and indirect tax laws are to be strictly adhered to, the latest being GST.
Given these, how can we be treated at par with pawnbrokers and local moneylenders doing gold loan business in an unorganised way?
How are you coping up with the competition from many other significant players? How have you been able to retain customers?
Kosamattam is one of the largest NBFCs with around 1,000 branches across the country. We strive hard to ensure that once a customer has a relationship with ouhr company, either by gold loan, investment in debentures or through other ancillary services, he/she should never think of shifting from us.
This we try to achieve through excellence in customer services, transparent dealings, and promptly keeping our promises to customers. We have more than 5.5 lakh satisfied gold loan customers and more than 50,000 debenture-holders as of now.
What is your outlook on gold prices? What will be the impact on your business?
After some corrections, gold prices are now steady and any fluctuation in rates will not affect the quality of loan books, thanks to LTV guidelines and sentiments of customers. The risk is minimum even if gold prices come down.
Tell us about your expansion plans?
We are eyeing pan-India presence to ensure wider reach and bigger customer base. Efforts will be made to achieve more profitability through cost control and efficient utilisation of resources. The company will enter the home finance segment next fiscal.
(The article first appeared in The Hindu BusinessLine.)