Shriram City plans to quadruple its gold loan portfolio in five years
Shriram City Union Finance Ltd. (Shriram City), part of the Shriram Group, has set a target to grow its portfolio of gold loans nearly four times to Rs 20,000 crore in the next five years, an executive at the company.
The company hopes to achieve this through an aggressive expansion into northern India, after the completion of the ongoing merger process. It has already announced the launch of its gold loan product in 70 branches in Punjab, Rajasthan, Haryana, Himachal Pradesh, Jammu and Kashmir, New Delhi and Uttaranchal to meet growing demand for the product. The company has a strong gold lending franchise in South India and aims to replicate the success in the northern region.
At present, Shriram City’s gold loan book stands at Rs 4,110 crore. “We will aim to grow the guest book to Rs. 15,000 to 20,000 crores over the next five years. In South India, we have a strong gold lending franchise, and the majority of our business comes from that region. We will replicate in the north the best practices that have worked for us and envision profitable growth across India,” said YS Chakravarti, Managing Director and CEO of Shriram City.
“There is great opportunity and immense affinity for physical assets in India, and gold shines brightest among them. We launched our approach of lending to credit-tested Shriram clients and saw strong demand, good credit quality and no constraints on repayments,” he added.
The demand for gold loans has particularly increased over the past two years, where Shriram City’s portfolio contributed 13% of assets under management (AUM) in December 2021, compared to 10% the previous year. Overall, gold loan disbursements saw a healthy growth of Rs. 4,610 crore in the nine months of FY22 compared to Rs. 4,140 crore year-on-year, indicating better trends in FY23. “Interestingly, the perception of gold lending is slowly changing and gold lending is also emerging as all-weather lending. Today , gold lending as an asset class is one of the most convenient recourses for availing easy credit to meet the immediate financial needs of individuals/businesses,” a statement from the company reads.
The statement added that going forward, the company is targeting an average gold loan note size of around Rs 50,000, with a loan to value (LTV) capped at 75%, leaving scope the marginal requirement for additional margins in times of adverse fluctuations in the price of gold. Over one period, the company saw the life of its loan in the 5-6 month range despite the usual standard of 12 months, reflecting the borrower’s willingness to repay.