Muthoot Finance urges govt to grant 'priority sector status' to gold loans (2024)

Budget 2024 expectations: In anticipation of the upcoming Interim Budget 2024, Muthoot Finance highlights the importance of granting 'priority sector status' to gold loans and proposes the introduction of a 'Gold linked credit line via UPI' by NBFCs. George Alexander Muthoot, Managing Director of Muthoot Finance, in an email interview with Mint, has outlined key recommendations to leverage the idle gold holdings in Indian households.

Edited Excerpts:

How will ‘Gold linked credit line via UPI’ will benefit households and small businesses?

Amidst the ongoing global slowdown, the World Bank sees India as the fastest-growing economy in the world. Amidst the resilience of the Indian economy, coupled with a pick-up in investment activity and favourable demographics of India, the demand for credit from small business owners and individuals is expected to remain high. We are further hopeful that the upcoming budget and RBI monetary policy will provide the much-needed impetus to providing last-mile credit facilities. In line with prioritizing financial inclusion and improving credit supply, we suggest the RBI and government allow NBFCs to initiate a ‘Gold linked credit line via UPI’ to help meet the credit needs of households/small business owners.

We believe that the ‘Gold linked credit line via UPI’ by NBFCs will revolutionize financial accessibility for households and small businesses. Unlike existing financial products (like credit cards, and personal loans), this innovation caters specifically to meet the common man's short-term finance needs. By extending the UPI linkage through NBFCs, this secured credit line ensures a lower interest rate (12%-18%) compared to credit cards which offer interest rates upwards of 30%. This product not only addresses immediate financial gaps but also promotes financial inclusivity by providing an alternative to traditional banking products. It will further add to the Government’s vision to create a cashless economy and India to emerge as the largest adopter of digital payments.

Do you expect the govt to designate gold loans under the priority sector in the budget? How will this help the industry?

The gold-loan NBFCs have played a crucial role in India's deepening financial inclusion and complementing the banking sector. The financial sector has various expectations from the budget and we believe that if the government grants ‘priority sector’ status to gold loans granted by NBFCs it will lead to far-reaching benefits for the economy. This proposal is anticipated to particularly assist the bottom of the pyramid, where small borrowers often require loans under 50,000 for short durations. Gold loan NBFCs can play a crucial role in fulfilling these needs, offering financial support to self-employed individuals, and micro-business owners, and contributing significantly to financial inclusion. While banks have access to low-cost funds via CASA deposits, granting priority sector status to micro gold loans (under 50,000) across NBFCs and banks will empower especially gold loan NBFCs with increased funding opportunities.

How can Budget tap into the hidden potential of the vast gold reserves scattered across rural India?

Indian households hold an enormous amount of gold jewellery estimated at approximately 25000 tonnes and rural India holds a 65% share of the entire nation’s gold stock. Gold jewellery is held idle across households and it represents an untapped resource that can be harnessed for immediate financing.

As the economy shows resilience and positive signs of recovery, the demand for credit from the MSME sector and individuals has grown and we are optimistic about achieving the 15% AUM growth guidance for FY24. Gold loans are the oldest form of credit and during the 2020 COVID pandemic, gold loans emerged as the quickest source of credit to both business communities and individuals to secure short-term loans and meet immediate liquidity needs. While the opportunity for gold loans will only widen in the coming years, we feel that the government recognising gold-loan NBFCs with ‘priority sector status’; and allowing a ‘Gold linked credit line via UPI’; will further enable the NBFCs to unlock this potential of idle gold. This strategic move will help in transforming idle gold jewellery into a dynamic source of liquidity while ensuring financial inclusion to promote equitable economic growth.

Interim Budget 2024

Like the previous three full Union Budgets, the Interim Union Budget 2024 will also be delivered in paperless form. Finance Minister Nirmala Sitharaman will present the Interim Union Budget 2024 will be presented on February 1. An interim budget will be presented this year as Lok Sabha elections are expected to be held in April-May.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 25 Jan 2024, 01:38 PM IST

I am an expert in finance and economic policies, with a deep understanding of the intricacies of the Indian financial sector. My expertise is grounded in both theoretical knowledge and practical experience, making me well-equipped to analyze and discuss topics related to budgetary expectations, financial inclusion, and the role of Non-Banking Financial Companies (NBFCs) in the economic landscape.

Now, diving into the article on Budget 2024 expectations:

1. 'Priority Sector Status' for Gold Loans: The article emphasizes the importance of granting 'priority sector status' to gold loans. This status is a crucial classification that allows certain sectors, in this case, gold loans granted by NBFCs, to receive preferential treatment in terms of lending and other financial services. This recognition can have far-reaching benefits, especially for small borrowers requiring short-term loans.

2. 'Gold linked credit line via UPI' by NBFCs: The proposed 'Gold linked credit line via UPI' is a novel idea suggested by George Alexander Muthoot, the Managing Director of Muthoot Finance. This innovative financial product aims to leverage idle gold holdings in Indian households. By linking gold loans to the Unified Payments Interface (UPI), NBFCs can provide a secure credit line with lower interest rates (12%-18%) compared to traditional options like credit cards.

This product not only addresses immediate financial gaps but also aligns with the government's vision of creating a cashless economy, positioning India as a major adopter of digital payments.

3. Impact on Small Businesses and Individuals: The article suggests that amidst the ongoing global slowdown, India is considered the fastest-growing economy. The demand for credit from small business owners and individuals is expected to remain high. The proposed measures in the upcoming budget, such as the 'Gold linked credit line via UPI,' aim to provide last-mile credit facilities, fostering financial inclusion and improving credit supply.

4. 'Priority Sector' Status for Micro Gold Loans: Granting 'priority sector' status to micro gold loans, especially those under ₹50,000, is anticipated to benefit the bottom of the pyramid. Gold loan NBFCs can play a crucial role in fulfilling the financial needs of self-employed individuals and micro-business owners, contributing significantly to financial inclusion.

5. Unlocking the Potential of Idle Gold Reserves: The article highlights that Indian households possess a substantial amount of gold jewelry, particularly in rural areas. Granting 'priority sector' status and introducing a 'Gold linked credit line via UPI' for gold-loan NBFCs can tap into this idle gold, transforming it into a dynamic source of liquidity. This move aligns with the government's vision of promoting equitable economic growth.

In conclusion, the proposed measures for Budget 2024 focus on leveraging gold loans, incorporating digital payment solutions, and prioritizing financial inclusion to stimulate economic growth in India.

Muthoot Finance urges govt to grant 'priority sector status' to gold loans (2024)

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