Truck finance company Shriram Transport Finance Company (STFC) plans to enter the gold loan business from November. But the company will not compete with established players such as Muthoot Finance and Manappuram Finance, as the new service will be limited to existing customers.
“We are doing this entirely for the benefit of our existing customer, so he doesn’t need to go out for a gold loan if he needs it,” said Umesh Revankar, managing director and CEO.
The company targets a disbursal of Rs 5 crore a month. “As more customers become aware, probably the disbursals can go up,” said Revankar.
STFC had started disbursals of gold loans in May 2010 on behalf of its group company Shriram City Union Finance, (Scuf), whose main presence is in south India. Compared with Scuf, STFC has more branches in other parts of the country.
Revankar said: “Earlier we were doing gold loans in very small numbers for Scuf. Now we have decided to do gold loans, which would be in our books from this quarter.”
According to a Reserve Bank of India (RBI) order issued in March 2012, loan to value (LTV) is capped at 60 per cent for non-banking finance companies (NBFCs) that have more than 50 per cent of financial assets in gold.
The apex bank has also barred these companies from lending against primary bullion and gold coins. The guidelines have hit the existing gold loan companies, which saw a negative growth in their assets under management (AUM) sequentially in the first quarter.
“These guidelines are not applicable to us,” Revankar said.
A recent Icra report says that organised gold loan industry in the country has grown at a compound annual growth rate of 78 per cent in the past two years to reach Rs 1,25,000 crore.
According to the Icra report, recent regulatory pronouncements such as the RBI guidelines are bound to impact the growth and margins of the NBFCs whose main business is gold loan. Margins could come down by about 100-150 basis points, the report said.
Two biggest players in organised gold loan industry, Muthoot Finance and Manappuram Finance, showed a negative growth in the first quarter in assets under management (AUM). “We would like to maintain our margins 9-9.5 per cent” George Alexander Muthoot told Business Standard.
Reiterating that the company is not looking at competing with the biggies, Revankar said: “We are looking at our existing customers. We are giving them an additional service. Therefore, we won’t go building business beyond our existing customers and there is no question of competition with other companies.”
Apart from financing commercial vehicles, STFC also provides tyre loans, engine replacement loans and working capital.
The company’s net profit as of June 2012 was Rs 322 crore, dropping 7 per cent year-on-year.
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