Gold auction notices by private lenders in regional dailies spread across more than one full page are becoming regular which, to the uninitiated, may point to the pandemic-induced financial stress among not just the economically weak sections but also the salaried class.

Leading NBFC Muthoot Fincorp recently ran a multi-page auction notice listing about 24,000 mortgage items for auctioning this July across its various branches since customers failed to pay up in time.

Statutory advertisements

But the lender would not attach significance to the advertisement and maintained that the “default cases continue to remain within acceptable limits”.

This is a statutory advertisement, he told BusinessLine . The actual auctions amount to just less than one per cent and is not a matter of concern since 99 per cent of customers redeem or renew their loans.

“We have to take these steps; otherwise, we would be breaching the NPA norms of the Reserve Bank which will not be seen good in the eyes of rating agencies, banks and the RBI as well.”

Extra time to pay up

On special request, the NBFC grants customers extra time to redeem their gold. “We would in fact want customers to save their gold. This is important for us, too. Because of Covid, we have a special scheme for customers to renew their loan at 11.99 per cent. Lot of these steps are being taken thoughtfully.”

In fact, John Muthoot noted that the gold loans portfolio witnessed healthy growth during FY 2020-21. Coupled with rescheduling of earlier auctions due to lockdowns, this had resulted in a higher number of loans going into auction.

Overall, this is a small percentage compared to the total disbursements of ₹39,500 crore during the period, he said. But John Muthoot did agree that the Covid-19 second wave and resultant lockdown did disrupt economic activities and compromised the financial position of customers.

Element of uncertainty

“But if we compare it with the first wave in March 2020, the element of uncertainty is evident. The community demonstrated resilience and preparedness to face the situation. The lockdown has been relaxed in most states. Normalcy will enable the common man to return to work and resume activities”.

According to him, gold loans continue to witness a healthy demand. “The common man is our customer and his financial needs continue to be our focal point. We are in constant touch with customers and our product research capabilities enable us to understand their needs. The demand for fresh loans is picking up post-relaxations in lockdown,” he added.

On business outlook for the next few quarters, Muthoot said: “We remain bullish on the growth story of Indian economy. The Centre as well as the Central bank has reiterated the commitment by announcing packages or capital investments to propel the growth. As businesses reopen and activities restart, we are sure that the economy will rebound. We expect to grow by 12-15 per cent as higher demand unfolds”.

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