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'Gold Loans Need to be Under Priority Sector Lending': Indel Money CEO

Umesh Mohanan, Executive Director & CEO, Indel Money, a Non-Banking Financial Company (NBFC) wants gold loans under the priority sector lending category. The gold-loan NBFCs have been playing a positive role in fulfilling the credit demand of under-penetrated markets, Mohanan tells ASHISH SINHA of BW Businessworld. Excerpts

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What specific policy support is required to boost underserved segments of borrowers by NBFCs/gold-based loan disbursing companies? Why is the government not giving them? In its absence, how can you expand or grow? Do expand on the reasons please?
Well, gold loans need to be brought under the priority sector lending (PSL) category. As availing gold loan doesn't require any credit bureau check and the gold loan is essentially a source of easy credit, the PSL status to gold loan NBFCs will make it an effective tool to meet the major part of the PSL requirements. Inclusion into the PSL category will also pave the way for the banks to participate with more vigour and finance gold loan NBFCs at a subsidised rate. The lower cost of funds will ultimately benefit the borrowers with lower borrowing cost. According to section 17 of CGST Act, NBFC can claim Input Tax Credit on its inputs, inputs services or capital goods at a fixed rate of 50 percent on all of its credit. The government can increase the rate to at least 75 percent which will create more space in the bottom line. In addition, the RBI revised guidelines on the current account opening which restrict NBFCs from opening multiple current accounts with the banks offering credit exposure to them have posed some operational challenges while managing branches spread across the country. The government needs to address these issues. Although we are operating and working towards catering to more under-served demand, gold loan NBFCs need continued support from the authorities and policymakers to make services more customer-friendly. Gold loan NBFCs have been playing a positive role by fulfilling the credit demand of under-penetrated markets. The government needs to acknowledge their role and create an enabling ecosystem for them.

Budget has remained silent on providing adequate liquidity infusion to the organised gold loan segment so that it can continue to meet the credit requirements of individuals and the working capital requirements of entrepreneurs. How does it impact the business? Where can the companies go for additional liquidity? How are you managing? How much money do you need for Indel for the current year 2022 (or Fiscal FY23)?
As the borrowing rates remain unchanged, we are exploring avenues like co-lending partnerships with banks to meet the credit demand of the customers as well as to bring down the cost of borrowing for them. For additional liquidity, the NBFCs can seek additional credit exposure from banks. They can also launch bonds to rationalise the funds cost. The RBI should also offer support to banks so that they can enhance credit exposure to NBFCs with sub-A credit rating. Because these are the NBFCs that cater to the underserved rural credit demand, thus furthering the government's mission to ensure financial inclusion.

What is the update on (Indel Money NCD Sep 2021) your public issue that was closed on October 18, last year?
The market has been receptive to our NCD. Because of the market decline in the interest rates, our NCD has managed to attract sizable investment from investors especially from the HNIs.

Budget 2022-23 remained silent on any sort of help/special consideration for encouraging co-lending partnerships between banks and gold loan companies? What may be the reasons for this, according to you? How is your association with IndusInd developing? Are there more such tie-ups planned for this year?
Co-lending partnerships between banks and gold loan companies are the prerogatives of the RBI. It will definitely address the aspect in due course of time. Our association with IndusInd Bank is a first-of-its-kind conventional gold loan co-lending partnership in India. The collaboration is helping us in expanding our gold loan portfolio. We are in talks with them for a second round of funding. In addition, we are in the process of finalising co-lending partnerships with two more banks.

Budget has ignored the plea to bring agriculture gold loans provided by NBFCs under the interest subvention scheme? What are the main reasons? Is there an issue of mistrust - Government not trusting NBFCs or Is it simply being extra cautious and trying to protect the interest of consumers?
I am yet to ascertain the reason why the budget hasn't addressed that need.

What kind of investments are required for offering gold loans at the doorstep of the customer (or instant gold loans)? How much will you be investing for this? How much has been invested till date?
We expect the doorstep gold loan to take up 30 percent of our gold loan disbursement in FY23. There is not much investment involved but a dedicated and trained vertical of team members is required in expanding this service in various markets. Doorstep gold loan service is a digitally-enabled extension of our core banking system which comes with a digital customer on-boarding facility.

The organized gold loan market in India is currently valued at INR 4.1 lakh crore and grew at a 5-year CAGR of 16.4 per cent during the period FY16 to FY21. What are the key drivers for growth? What are the initiatives the government can take to accelerate the growth?
The working capital requirement from the MSME sector and under-penetrated markets in the country are the key growth drivers for growth. The government needs to work towards developing a robust credit eco-system. The decision of the RBI to allow banks to provide funds to NBFCs under the on-tap targeted long term repo operations (TLTRO) scheme was a welcome move. However, while implementing the directive, the banks ended up favouring NBFCs with high credit ratings that have reached a certain stability in the market. The government needs to extend credit support to the growing NBFCs with sub-A rating as well.

What is your gold loan outlook for 2022? What are the challenges posed by new Covid variants and what will be the way forward?
As the economy is rebounding, our gold loan outlook remains positive. The gold loan demand will be driven by small and medium companies that are unable to avail credit from banks and other lending institutions due to credit bureau checks. There is no immediate threat from any new Covid variant. We expect the economy to regain momentum soon.

What’s your outlook towards increasing your gold loan portfolio?
The increase in our gold loan portfolio is based on our expansion into various states. Our plan to venture into states like Maharashtra, Goa and West Bengal in Q4FY22 and Gujarat, Madhya Pradesh and Rajasthan in FY23 will continue to fuel growth of our gold loan portfolio. We aim to double our gold loan disbursement by FY23.

Indel Money has recently ventured into Odisha. What’s your Pan-India network expansion plan?
As a part of our Pan-India expansion plan, we aim to venture into Goa, Maharashtra and West Bengal in Q4FY22 and Gujarat, Madhya Pradesh and Rajasthan in FY23. We have more than 225 branches across the southern part of the country and Odisha. We aim to take the branch tally to more than 405 across 11 states by 2023.

What’s your fund-raising plan?
We have plans to launch the next public issue of NCD in Q1FY23 with an issue size of Rs 200 crore.

How will gold price rise and revival of the economy impact the company’s performances in the next few quarters?
The gold price movement has been stable in recent times. The gold price retreated after hitting an eight-month high as there were signs of easing Russia-Ukraine tensions. We expect an upward trend in gold price movement in Q4FY23. Unless there is serious geo-political development or force majeure event, gold price is likely to remain stable in the next three quarters or so. As I mentioned before, the revival of the economy will drive gold loan demand among small businesses and individuals.

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Indel Money Umesh Mohanan