VP Nandakumar is the Managing Director and Chief Executive Officer of Manappuram Finance Limited, a non-banking financial company (NBFC) focused on providing loans. These loans include gold loans along with home loans, personal loans, vehicle finance, small and micro finance.
The 67-year-old Nandakumar has helmed Manappuram Finance, which was founded by his father, for the last 35 years. The company was listed on the Bombay Stock Exchange in 1992 and currently manages assets of about INR 27,600 crore.
Nandakumar is a managing committee member of the Federation of Indian Chambers of Commerce and Industry, Associated Chambers of Commerce and Industry of India and Forum for Indian Development Cooperation. He also serves on the board of the Indian Institute of Management, Kozhikode.
He has keen interest in farming and has multiple farms that house livestock including domestic animals, exotic birds and fishes.
In an interview with Forbes Advisor India, Nandakumar spoke about how gold loans have picked up during the coronavirus pandemic and what it means for India’s savings culture.
How are gold loans given to customers?
The gold holding in the country is very large in quantity. Some estimates go up to the extent of 30,000 tonnes. Our official statistics itself show 800-900 tonnes of gold being imported every year. So we do have a large quantity of gold, the larger part of it gets converted into jewelry. Every year middle and low-income citizens from villages across India buy gold ornaments in small quantities from their savings.
We help them monetise their precious gold jewelry by offering finance at affordable rates. Otherwise, they will invariably have to borrow at very high rates from moneylenders—something that has been common in India since many decades.
Many people use a gold loan as a means for a temporary or short-term loan and would like to get back the same gold chain that they had originally pledged. The Indian psychology is different, and so the best way to monetise gold is by way of loans against jewelry.
Initially, the biggest challenge faced by lenders like us was to change the perception of taking a gold loan from a distress product choice to a lifestyle product. We have been able to do it by first advertising the product via trusted celebrity endorsements to build trust and by introducing technology-driven products.
With our digital gold loan product, the customer can park their gold in our branches and get a drawing power, which can be used as an overdraft limit that may be operated from anywhere using a mobile phone.
For those customers who can’t reach our branches, we allow the gold loan to be disbursed to them at home. Consumers can store their ornaments with us free of cost and do not need to pay any interest unless they use it for a gold loan. If they avail a loan for a day, they needs to pay one day’s interest.
How has the regulator ensured gold lending in India is secure for consumers?
To streamline processes and bring about uniformity and transparency for every stakeholder, the Reserve Bank of India had issued a fair practice code in 2013-14. I think that has brought a lot of transparency into the communication with the customer, safe custody of gold, procedures for auction etc.
Everything is covered in the fair practice code laid down by the regulators about eight years ago and I think that is adequate for the purpose. However, despite all these measures, the biggest lender against gold jewellery in the market remains the unorganised moneylenders. The reason is, they can lend at any loan to value (LTV) ratio as they are not bound by any regulations or restrictions. They operate around us and nearby the customers’ houses, and they are thriving. About 60% to 70% of the total gold loan market is controlled by them and there is no record of it because they do not fall under any regulations.
Between 2012 to 2014, the RBI came out with regulations governing the organised gold loan market that gave an opportunity to unorganised moneylenders and pawnbrokers to further tighten their grip on these poor borrowers. For gold loan non-banking financial companies (NBFCs) with more than 1,000 branches, it was mandated that further new branch openings would require prior approval. At the time this decision was made, India’s current account deficit was very large and a major cause of concern. Subsequently, things got normalised and gold imports came down to affordable levels.
Another point to note is that currently regulations have put a blanket cap of 75% on the maximum permissible LTV ratio for gold loans. I feel that companies with adequate capital to safeguard the interests of stakeholders should be permitted to lend at LTV of more than 75%. Of course, regulators may place some extra requirements such as prescribing higher capital adequacy.
The fact remains, NBFCs face various restrictions, unlike banks and eventually the benefits go to the unorganised sector.
What would be the one thing that you wish changed with respect to gold lending in India?
As far as gold is concerned, our relationship with the gold is that of a bailor and bailee. We only take the gold as security and we cannot use the gold in any other way. But if we get the approvals, we can certainly help the government in mobilising gold under their gold deposit schemes. Further, in the larger interest of stakeholders, permitting gold loan companies to open branches without restrictions would go a long way in mobilising gold for productive purposes.
Instead of a blanket cap on LTV, the gold loan company should be able to decide at what LTV to lend at. Finance companies are allowed to give unsecured loans, whereas in our business where the loans are fully secured by gold, there is a cap on LTV.
What have been your significant learnings that you feel the world should know about?
One thing I have learned is that to drive a service industry, what is most important is to speak out. Focus on constant improvement of your employees and never let them become lazy and complacent in one area. Therefore, frequent job rotations are a must. The industry is evolving fast and we must impart proper training as things are becoming digital.
To face these challenges, I need to take the entire workforce with me. For that, we have tied up with universities for different training and educational programmes and also various specialists with domain knowledge. The larger idea is to take average people and convert them into extraordinary talent. So, we focus a lot on retaining our people, and we have no hire and fire policy.
Do you feel there should be more financial empowerment for one and all? What are the few things that you would like to suggest as changes to the ecosystem?
I feel the NBFCs should enjoy more freedom and at the same time be held to account for their actions. The decisions of regulators and policymakers should become more transparent. An appellate authority should be set up one level above.
If the appellate authority is from within the system, it may not work as people look at what their subordinates have done and would usually prefer not to go against their colleagues. Therefore, the appellate authority should be outside of the system. It will bring more transparency and increase faith in the system and reduce the scope for arbitrary decisions.
What makes you feel empowered?
I am always in the midst of people, mostly my employees. In the group as a whole, we have around 28,000 employees. The motivation they have, gives me motivation in return.
