Interview| Online gold loan business is gaining traction and NBFCs want to make the most of it: Indel Money CEO

Umesh Mohanan, CEO Indel Money

Umesh Mohanan, CEO Indel Money

The current size of organised gold loans in the whole gold loan market is five percent and with growing competition, the organised gold loan segment will eat into the unorganised gold loan segment, said Umesh Mohanan, Executive Director & CEO, Indel Money in an interview to Moneycontrol.

Mohanan holds an MBA from LSE and is a seasoned investment professional with a proven track record of heading a multi-billion dollar Middle East-based conglomerate. 

He said that the gold loan demand is being fuelled by the current credit crunch, lower credit eligibility requirements, liquidity needs and faster disbursal.

The Kerala-based gold loan company is the first NBFC in the country to offer a two-year old gold loan product and mostly cater to the rural areas. Indel Money is the flagship financial institution of Indel Corporation with a total paid up capital of Rs 200 crore plus and a total turnover crossing Rs 1,000 crore. 

Edited excerpts:

Q: Gold loan industry is on a growth curve despite the pandemic. What are the key drivers?

Gold loan sector is witnessing a healthy growth in terms of demand and disbursal because of the intrinsic advantages that gold loans bring to the table and the prevailing market scenario. The gold loan can easily be availed thanks to its lower credit eligibility requirements. Hence, it fulfils the liquidity needs quicker than any other loan instrument. Given the prevailing credit crunch in the market and higher gold price leading to higher LTV ratio, the demand will grow further from here. 

As per various estimates, the household gold reserves stand at 25,000 tonnes in volume terms and approximately Rs 110 lakh crore in value. So, the gold loan sector has a huge growth spectrum to leverage. 

Q: What is the present liquidity condition of the NBFCs?

The liquidity scenario in the NBFC sector has improved significantly, thanks to fresh fund infusion by RBI through various schemes. Having said that, easing liquidity stress or increasing disbursement depend on the collection efficiency which varies across sectors. The sectors which have been affected are microfinance institutions, consumer vehicle finance, etc. 

Q: Are you exploring any inorganic opportunity for growth given the fact that there are many distressed assets up for sale in the NBFC sector?

We are open to the options if those are good underlying assets with potential for a turnaround.

Q: NBFCs have recently come under the scanner for poor corporate governance. Being a fast-growing NBFC, how are you addressing the issue?

We are following stringent corporate governance standards. Even though we are a 100 percent family-owned company, in the eight-member Board of Directors, only three members are from the family and the rest five are eminent dignitaries and experienced industry professionals such as the current Association of Mutual Fund India, CEO, former deputy managing director of State Bank of India, former principal chief general manager of Reserve Bank of India and practising chartered accountants. 

Besides, we have hired a team from KPMG which operates in our corporate office. The team functions as the CEO’s back office, performing concurrent audits on procedures and processes throughout. Before any proposal is tabled to the board of directors, it is vetted by the KPMG team. One of the KPMG partners is always a special invitee to the board meetings.

Q: What makes Gold loan NBFC a de facto choice of consumers at a time when banks are aggressively foraying into the segment?  

The gold loan NBFCs offer specialised services to its customers when compared to banks which have gold loans as a part of its bouquet of loan products. So, banks don’t have a focused approach to gold loans. Also, gold loan NBFCs cover a major part of the population, especially in the rural area which doesn’t belong to the service networks of banks. 

Moreover, the gold loan NBFCs score over the banks in terms of service efficiencies such as faster turnaround time, more attractive schemes, convenience and faster disbursals. Add to that gold loan product innovation. For instance, our long-tenured gold loan has redefined the conventional gold loan narrative in a big way.  

Q: The gold loan market is majorly unorganised. Will the intensified competition in the organised gold loan segment alter the scenario?  

Five percent is the size of organised gold loans in the whole gold loan market. Thanks to the growing competition, the organised gold loan segment will eat into the unorganised gold loan segment. On the other hand, the organised gold loan market has also been witnessing growth, thanks to increasing market penetration and geographical presence. So, both landscape and intensity of competition are growing in the organised gold loan segment. Having said that, gold loan NBFCs will continue to hold sway thanks to their operational efficiency, flexibility and customised approach. 

Q: Indel Money has done some innovative fundraising transactions during the pandemic. Can you please elaborate on those transactions?

After the lockdown, we are exploring various fundraising options to keep the onward lending active and cater to the gold loan demands. We were the initial ones to perform a pass through certificate (PTC) transaction immediately post-lockdown. We also performed India’s first revolving gold loan PTC transaction to expand our gold loan book. We are also exploring co-lending opportunities as well as BC partnerships. 

Q: You have recently launched a first-ever long-term gold loan with a two-year-tenure in the country. How has been the response?

We take pride in the fact that we are India’s first NBFC to have launched a two-year old gold loan product. The response so far has been excellent as more and more business owners and household members are recognising gold loans as a usual source of arranging funds, which was quite uncommon previously. The gold loan demand is also being fuelled by the current credit crunch. Hence, ample long term loan requirements are emerging which can be met with gold loans. 

Q: You have recently got approval to raise more funds. What is the strategy going forward?

We are in the process of exploring various options such as capital injection by the group holding company, raising funds through public NCDs and PE/VC placement.

Q: You have a strong presence in the southern part of the country with 169 branches. What is your expansion plan? What are the other markets you are planning to target?

We are planning to strengthen our presence in Andhra Pradesh and Telangana by FY20-21 and in FY21-22, we aim to cover the states of Maharashtra and Gujarat with our conventional brick and mortar format. And to spread our doorstep gold loan facility which runs on virtual branches, for which we are planning to set up a support hub in every major city across India.

Q: What is your current turnover?

Always finance companies quote on the basis of their book size. The company has got both a balance sheet and off-balance sheet put together with an AUM (Assets Under Management) of Rs. 700 crore.