The government has hiked the import duty on gold from 4 per cent to 6 per cent to dissuade gold importers and contain ballooning current account deficit. However, the move is expected to push up gold prices which would have an indirect benefit for PE-backed gold loan firms as they would be able to lend more against same quantum of gold with higher prices.
The announcement comes within three week after RBI’s proposal increasing the loan-to-value or LTV ratio to 75 per cent from 60 per cent currently. If accepted the proposal would essentially mean gold loan firms can lend out more to borrowers for the same physical gold deposited as lien.
“We are not expecting the demand for the gold jewellery to come down in the longer run. There could be some impact for the next 2-3 months, but the increased price of gold means we could give out more loan per jewellery mortgaged,” said I Unnikrishnan, executive director & deputy CEO, Manappuram Finance.
Manappuram counts India Equity Partners Fund, Sequoia Capital, Baring India PE, Siguler Guff, Granite Hill India among its current investors.
Analyst tracking the sector said that there won’t be substantial impact on the gold loan companies. “Gold loan firm lend money against gold jewellery and not against bullion. There won’t be big impact and rather it would increase their lending capabilities,” said an analyst tracking the sector.
Another major gold loan firm is Muthoot Finance, which is backed by Kotak PE, Abu Dhabi’s sovereign wealth fund, Baring India PE, Matrix Partners among others.
(Edited by Prem Udayabhanu)