Gold price fluctuation will not hit loan portfolios: AGLOC

Chennai:

Association Of Gold Loan Companies (AGLOC, India) said that a 15-20 per cent price fluctuation in gold prices would not have any significant impact on the gold loan portfolios of member companies as they have already factored already such fluctuations in the business model.

Though gold price is an important factor in gold loan business, the business model should not be misunderstood as a business of financing of gold bullion or shares where in mark to market valuation could affect the repayment behaviour of the borrower.

AGLOC President George Alexander Muthoot says, “The gold loan companies are primarily lending against household jewellery where the impact of such temporary fluctuations on the business model are minimum. These loans are of short duration of 3-6 months. Compared to the disbursements, NPA levels are low.”

Most of the companies have majority of their branches in semi-urban and rural areas and majority of their loan book consist of loans of ticket size below Rs 1 lakh. Hence probabilities of defaults are low inspite of fall in gold price. The gold loans companies have a system of regularly calling up their borrowers and reminding them about the dues on the loan. The companies extend a monthly interest collection target every month to all its branches which ensures in maintaining regular interface with customers and promotes prompt repayment habit among the borrowers.