What measures to expect in gold loans from FM in Budget 2023?

Among the many benefits of gold loans are that they are easily availed and less time-consuming. There is no need for external collateral as money borrowed from banks, NBFCs and other financial institutions are against securities which in this case would be gold and jewellery ornaments.

Gold loans offer liquidity and also reduce the burden of maintaining credit score since banks or other institutions have taken your collateral assets as a guarantee. Further, gold loans require minimal paperwork and have no restrictions on usage. Additionally, gold loans also have tax benefits of ₹1.50 lakh under section 80C.

Thereby, gold loans have witnessed a healthy growth in demand and disbursal over the years.

According to Umesh Mohanan, Executive Director & CEO of Indel Money, the gold loan sector has witnessed a steady growth in demand and disbursal due to a change in perception towards pledging of gold and the present positive market and consumer sentiment towards economic revival.

With Budget 2023 just around the corner, Mohanan believes that as gold loan has emerged as an effective tool to avail credit for individuals and businesses, especially in the rural parts of the country, the government needs to propose measures to facilitate liquidity infusion to the organised gold loan segment.

He added that the budget proposals should support the organised gold loan companies so that they can expand their market outreach and penetration to address credit under-penetration in certain business and consumer segments. In addition, the budget should propose an effective co-lending framework to further encourage stronger collaboration between gold loan companies and banks when it comes to addressing the unmet credit demand.

Further, George Alexander Muthoot, MD, Muthoot Finance explained that taking a Gold loan against household jewellery 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 ₹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.

However, Muthoot added that gold loans provided by NBFCs are not considered priority status and hence, specifically to gold loans NBFCs. Thereby, he expects this Budget to restore priority sector status to eligible gold loans, including microloans, loans to farmers and micro businesses. Muthoot Finance is one the largest providers of gold loans in India.

Also, Muthoot hopes 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.

Additionally, Muthoot said, “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.”

Finance Minister Nirmala Sitharaman will present her fifth budget under the PM Modi government. The budget which is scheduled to be announced on February 1st is for the fiscal year 2023-24.

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