Gold-loan fintech firms spot a glimmer in RBI's draft rules

Time of India

02-05-2025

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As the Reserve Bank of India strengthens its rules of governance around the gold loan sector , new-age fintech firms are sensing an opportunity either through partnerships with banks and non-banking lenders or by scaling up on their own.On April 9, the RBI issued draft guidelines to harmonise the regulatory framework for gold loans , strengthen aspects around the conduct of gold loan lenders and also address regulatory concerns observed around the sector.With new lenders like L&T Finance and Poonawala Fincorp announcing their entry into the gold loan business over the last two months, startup founders believe that there will be fresh co-lending opportunities that will open up.'Co-lending is an opportunity for fintechs, many large fintechs which were only doing unsecured consumer lending are now seriously evaluating this space through co-lending partnerships with NBFCs and banks. This will also help them expand their secured credit offerings,' said the founder of a digital lending startup operating in this space.Bengaluru-based Rupeek, Chennai-headquartered Oro Money, Noida's Indiagold and Manipal Fintech of Gurugram are a few of the major startups operating in this space. Earlier this year Manipal Fintech onboarded Puja Abhishek Singh as its new chief executive officer. Singh joined the company from Paytm, where she was heading business operations.Consumer lending startup Moneyview, which in September 2024 was valued at $1 billion through an internal funding round, is looking to start offering gold loans, said a person in the know. Moneyview did not respond to queries.Digital payments firm PhonePe, which is scaling up its credit operations, has begun acquiring gold loan customers for Muthoot Finance and Muthoot Fincorp through its mobile application.In April, BankBazaar, which is primarily an unsecured loan sourcing platform, partnered with Muthoot Fincorp to source gold loan customers for the NBFC through digital channels. Muthoot Fincorp, a gold loan NBFC, also acquired a small stake in Bank Bazaar by investing Rs 15 crore.'We want regulatory stability and clarity; 65% of the gold loan market in India is not formally served yet. We want to do business properly, so the regulator's formal directives will only help us expand our network of fintech partnerships ,' Muthoot Fincorp CEO Shaji Verghese said.India is estimated to have around 25,000 tonnes of gold holdings across its households and borrowing against gold jewellery is a very popular means of protecting families from sudden financial shocks. This is one of the reasons why everyone from high street lenders and gold lending NBFCs to new-generation fintechs have been chasing this market.'Overall, this circular will give more power to banks to create income generation gold loan products,' said the founder of another gold loan startup. Since the regulations are still in the draft stage, the founders remained anonymous.While regulations will help the sector get more organised, industry observers also believe that higher regulatory requirements might also dampen the growth prospects of some of the traditional lenders operating in this space.Given these NBFCs have mostly worked on a branch-led model where the gold is assayed physically and loan disbursal happens on the go, mandatory underwriting of the customer which the RBI has mentioned in the draft rules might make the disbursal process time consuming and expensive.Fintechs like Perfios and others can actually help estimate the income of a customer through bank statements, but the question remains if these cost-sensitive NBFCs will open up to work with these players.'The RBI wants banks to undertake cash flow analysis of the customer, assess the income of the customer, but gold loans all these years have mostly been given on the value assessment of the gold. This extra step might become a barrier for these cost-conscious lenders,' said Siddharth Goel, director, non-banking financial institutions, Fitch Ratings.Goel believes that this will push NBFCs to only do consumption loans and stay away from income generation products. But gold loans have been the go-to product for shopkeepers who are typically not eligible for unsecured credit products; so how that market will be impacted remains the question.'Perhaps the new-generation NBFCs entering this space will approach the product differently and engage the services of fintechs. The traditional ones might not be so proactive with regards to fintech partnerships,' Goel said.