Over 30 years, this Kochi-based NBFC has made gold loans popular
A lending firm started by a pilot and Gulf returnee to Kerala in the late 1980s to help small businesses access financing has transformed over 30 years into a non-bank specialising in gold loans.
Most recently, Kochi-based Indel Money’s gold loans have found a lot of takers among micro, small, and medium enterprises (MSME) hit by a credit crunch during the coronavirus pandemic.
Gold loans have picked up pace during the pandemic and gained wider acceptance among MSMEs as an alternative means of obtaining credit, says Umesh Mohanan, Executive Director and CEO of Indel Money.
In fact, gold loans form 90 percent of Indel’s business, and 60 percent of applicants are from the MSME sector, says Umesh.
Apart from gold loans, Indel offers small business loans and consumer durable loans, with the overall average ticket size in the range of Rs 75,000-85,000 and interest charged between 12 percent and 24 percent.
The business has 169 branches across several cities of Kerala, Karnataka, and Tamil Nadu, where it has the largest network. Its registered office is in Mumbai. Indel’s assets under management total Rs 700 crore.
Enabling access to credit
Indel was set up by Umesh’s grandfather, Palliyil Janardhanan Nair, in 1986. Fondly called Pee Jay, he was earlier part of the first batch of pilots at Bharat Airways (now Air India) and flew former Prime Minister Pandit Jawaharlal Nehru.
After a stint in the aviation industry, Pee Jay worked with companies including Tata Tea and moved to Kuwait in the 1970s to join the conglomerate Al Mulla Group as its commercial director.
On returning to India in the early 1980s, Pee Jay found small businesses in Kerala struggling with financing issues.
“My grandfather realised there was a last-minute lack of financial connectivity at the end of the month for all the workers,” says Umesh.
So, Pee Jay started Indel Money with one branch in Cochin, as Kochi was then known, on a licence issued by the state government.
Until Pee Jay’s passing in 2011, Indel served customers in Kochi and nearby areas. Umesh joined the business in 2013, along with his father Mohanan Gopalakrishnan, who had been a banker for 37 years. Together, they decided to expand the business and ramp up operations.
“We converted the licence into an RBI (Reserve Bank of India)-governed non-banking finance company (NBFC) licence and bought in a paid-up capital of approximately Rs 85 crore in 2012,” says Umesh.
The high paid-up capital amount was important to “assure all stakeholders that we would be the last ones to allow the business to fail”, he says.
Keeping up with the times
Umesh says Indel’s business and customer profile have changed a lot since its early days.
“During my grandfather’s time, it used to be run more like a family affair and catered mostly to customers in the agricultural sector,” he says.
Umesh started helping his father with the business in 2013 and ultimately took over in 2017. A “modern approach” is what Umesh says he has brought to the business.
Indel is now running a pilot e-KYC (know your customer) for loan applicants. When implemented formally, this will enable online verification and loan disbursal in 10-15 minutes, says Umesh.
To apply for a loan, one has to complete the KYC process. After this, the value of the loan based on current gold rates is communicated to the customer. The loan is sanctioned after the customer agrees.
As part of the digital push, the company has introduced the Indel Money app, which allows customers to check their loan account balance, make partial or complete payments, and check out new schemes, among other features.
Indel Money also rolled out a two-year-old gold loan in July last year.
“Traditionally, gold loans have been taken for short-term purposes,” says Umesh. “Customers end up paying higher interest by re-pledging the gold after short periods of 90 days or 120 days. Our long-term gold loan saves them from this trap.”
In terms of the NBFC’s internal operations, Umesh says he has brought some changes in the HR policies to ensure a “human connect” at all levels.
According to Umesh, the biggest change he has observed over the years is that gold loans are not considered taboo any more. Even though they still tend to be the last option for obtaining credit, given the sentimental value of gold items in Indian families, there is now growing acceptance for gold loans, he says.
Checks and balances
Given that gold loans depend on the current prices of the yellow metal, does Indel have a borrower selection criteria?
Umesh says that although a price correction can raise credit costs for the lender, the company does not have any such criteria.
In the last 10 days, the price of gold (1g) has been hovering between Rs 45,130 and Rs 47,230.
“Although gold prices are high at the moment, we haven’t implemented any borrower selection criteria in terms of repayment capacity,” he says. “The only criteria we have for taking an exposure against gold is the quality and purity of the metal.”
The main attraction for people to apply for a gold loan tends to be the instant access to cash without any financial solvency checks getting carried out. “In order to mitigate this, we have equipped ourselves with a robust mark-to-market monitoring system,” says Umesh.
According to consultancy firm KPMG, informal lenders account for 65 percent of India’s $46-billion gold loan industry and typically charge interest ranging from 25-50 percent. The gold loan market in the country is set to expand by at least 34 percent to $61 billion in two years to March 2022, estimates KPMG.
As an NBFC, Indel is part of the organised MSME and gold lending space that has lenders such as Muthoot Finance, Aye Finance, Bajaj Finance, and Rupeek.com.
Given that there are only a few lenders in the organised market, Umesh says there is a lot of room for others to come in.
On the NBFC’s plans, Umesh says it is looking to venture into Maharashtra and Gujarat. The company is also eyeing the north-eastern markets.
This apart, Indel is aiming for a listing on the capital markets after crossing Rs 3,000 crore in AUM.
Edited by Lena Saha