RBI's revised lending norms trigger repayment stress at gold NBFCs

Six months after the RBI's new gold lending norms came into effect, NBFCs are seeing a spike in delinquencies, as borrowers struggle to adjust to the shift from traditional bullet repayments to EMIs and shorter-tenure loans. Lenders, however, say the uptick reflects the transition to the new repayment structure rather than any deterioration in the underlying asset quality of their gold loan portfolios.

Manappuram Finance is the latest NBFC to report a sharp rise in delinquencies. Its Stage 2 gold loan assets, comprising loans overdue by 31-89 days, increased ten-fold to 5% in the September quarter. This came even as the Kerala-based lender's consolidated gold loan assets under management surged 93% year-on-year to ₹60,640 crore.

Bhuvanesh Kalaiselvan, president and group CFO, Manappuram Finance, attributed the increase in Stage 2 assets largely to changes in borrower behaviour following the RBI's gold lending guidelines in April. The revised norms allowed lenders to introduce monthly EMI-based and short-tenure gold loans alongside the traditional one-year bullet repayment structure.

"These are all early reads and largely attributable to behavior of customers getting used to this kind of product," Kalaiselvan said during the company's second-quarter earnings call. "These products are something that customers have never experienced before. They are used to the traditional one-year consumption kind of loan, which is traditionally a bullet payment."

Earlier, the country's largest gold loan NBFC, Muthoot Finance, reported a more than two-fold increase in Stage 3 assets, comprising gold loans overdue by more than 90 days, to ₹7,267 crore while Stage 2 assets worsened to ₹23,467 crore from ₹534 crore in the year-ago quarter.

Alexander George Muthoot, managing director, Muthoot Finance, said the new RBI regulations had led to the introduction of shorter-tenure loans and interest-servicing schemes. Since these products require borrowers to make monthly interest payments, missed payments can push loans into the Stage 2 and Stage 3 buckets. "Customers are new to the regular interest servicing scheme as it never existed in the gold loan industry earlier."

"We had introduced EMI and interest servicing gold loans. People are habituated to servicing only bullet repayment. Their servicing is not on time. That is the main reason," said Umesh Revankar, executive vice-chairman of Shriram Finance.

Some lenders are now scaling back their short-term gold loan offerings. "We have, since August, stopped doing short-tenor schemes as a firm," Bajaj Finance vice-chairman and managing director Rajeev Jain said during the company's earnings call. Bajaj Finance reported a ₹1,047 crore increase in Stage 2 gold loan assets during the September quarter, largely attributed to the short-tenure schemes introduced following the regulatory changes.

Manappuram Finance also said it is is gradually shifting towards longer-tenure products. "We are also slowly moving to from three months to six months product to one-year product. We lend to these short-term products only after assessing the customers. Short-term products will come down, and more of it will go down to one-year products," said VP Nandakumar, CMD, Manappuram Finance.

However, Muthoot Finance maintains that overdue loans during the transition may not necessarily translate into defaults. "Historically, around 98% of our customers repay the loans," Muthoot said, adding that auctions account for less than 1% of its portfolio.

Manappuram's Kalaiselvan also said a significant proportion of Stage 2 customers were making full or partial payments to regularise their outstanding dues, reducing the need to resort to auctions.

"It is a phenomenon which I think should normalize in probably in the next couple of quarters, and reach a more normal level as customers get used to these kinds of products," Kalaiselvan added.