Topics Executive Summary Research Objective and Research Data 1. Loan against Gold 2. Company Profile 3. Loan against Gold at FCFSL 4. Branch Costing For Loan against Gold 5. Risk Management 6. Interest Calculation on Loan 7. Break Even & Profit Projections 8. Comparison with Existing Players Conclusion Bibliography
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Executive Summary Loan against Gold as a product has become popular because of the substantial rise in the gold prices and the quantum of loan that can be availed against gold as a security. Gold loans existed in India since long but in the unorganized market. Lately, Loan against Gold has become the most sought after products and many new players are entering into this line of business because of the markets growth potential and consideration of the fact that most Indians have sufficient investment in gold. Customers are now being made aware of this loan avenue by the players in this line of business. This project report provides an understanding of the Loan against Gold business. The Loan against Gold business is carried out at Future Capital Financial Service Ltd., a detailed analysis of the same is done covering the procedural, operational, managerial aspects at the branch level. The study includes an understanding of the products and services that are offered at Future Capital Financial Service Ltd. under Loan against Gold The report will outline the various activities that need to be standardized at the branch level for the smooth and efficient conduct of business. The report includes a detailed study of the following aspects: Products Processes followed. Documentation (At Branch and operations Level)
The comparison on the above parameters is done with the competitors of Future Capital Financial Service Ltd viz. Muthoot and Manappuram. The report also provides with suggestions, recommendations to improve the functioning and profitability at the branches of Future Capital Financial Service Ltd.
Research Objective and Research Data Objective The objective of the research is to get an understanding of the business of Loan against Gold in India. The research involves a study of the various players in the Loan against Gold business in terms of their operations, volumes, profitability and the comparison on the said parameters amongst the various players. However, for the purpose of benchmarking, one player (i.e. Future Money) in the business will be comparison with the rest in terms of profitability. Scope Branch Profitability study includes analysis of the various costs/expenses that a branch has to incur in conduct of the Gold loan business. The costs include both fixed and variable cost and the cost of raising the funds. The profitability of the branches differs due to factors like location, competition, products and services offered, etc. A detailed analysis of the profitability parameters will be done in the research study with respect to branches of Future Money providing Gold Loan services. This analysis will be benchmarked with the more established players like Manappuram Finance and Muthoot Finance. The report will also provide suggestions, recommendations, ways that could improve the profitability of the branches of Future Money. Data The research will include a study of the Loan against Gold business of Future Money, Manappuram Finance and Muthoot Finance. The data for the study will be gathered from primary and secondary sources. The primary data for the same will be collected by visiting the branches of various players in the business and the secondary data will be collected from the websites which will include the financial data, sales data, branch locations, etc.
1. LOAN AGAISNT GOLD To avail any kind of loan from a financial institution, the borrower needs to offer collateral which is a kind of a security to the lending institution. The security safeguards the lender in case the borrower defaults. The security is the one which must be owned by the borrower and should have a monetary value. An individual may avail a loan for fulfilling his diverse needs. The various kinds of loan that are offered by the players in the loan business are as follows: Auto Loan Home Loan Personal Loan Loan against Property Loan against Security Loan against Gold One of the products in this category is Loan against Gold. The product involves offering loan against the security of gold ornaments/coins. For Indians, gold is considered as an essential investment from a cultural, emotional and safety perspective. Once bought, it is a dead investment. It tends to lie in the locker without earning any money. One can monetize this idle asset to help tide over ones financial need. Gold is a valuable commodity. Even though the market value of gold is often fluctuating, generally an upward trend is maintained. Gold satisfies all the tests of good security viz. marketability, ascertainability, stability and transferability. So, loans against pledge of gold ornaments are considered to be safe, liquid and remunerative Gold loans are not new to the Indian market. It existed but in the unorganized sector where money lenders used gold as a security for providing loans. Lately, Banks/NBFCs have entered into the gold loan business in a big way because the market is very large considering the fact that most Indians tend to have sufficient investment in gold. Off late, this product has become popular because of the substantial rise in the gold prices. The quantum of loan that one can get by keeping gold as security has increased tremendously making it an attractive loan proposition.
Features of Gold Loan:
1. Secured Loan: Gold Loan is essentially borrowings against the security i.e. gold. The loan is to be availed only if an individual is sure that the loan would be repaid or else he/she may end up losing the gold. 2. Tenure: Gold loans are typically for duration of 3 to 12 months. They are thus best used to fund short term monetary requirements. 3. No end use restrictions: The loan can be taken for any purpose so long as the money is not being used for speculative purposes 4. Loan amount: In most cases, the maximum loan value is not more than 80% of the value of gold. Most banks deal in relatively higher loan amounts. NBFCs on the other hand, deal in small value loans 5. Interest Rate: The interest rate charged by banks can be in the range of 11.5% and 15%. Banks usually charge a processing fee while NBFCs may not charge the same. The rate of interest charged by NBFCs is much higher as compared to banks. 6. Repayment: The loan can be foreclosed at any time without any penalty. In case of irregular payment of EMIs, a penal interest of up to 2% is charged by banks. 7. Market Risk: The lender retains the exposure to the market risk arising from movements in the market price of gold
Why Gold Loan? 1. Quick processing: Gold loans require minimum documentation and hence it can be resorted to in times of urgent need. Banks maintain that it takes a few hours to get a gold loan and some NBFCs state that it takes only a few minutes. 2. More attractive than a personal loan: The rate of interest charged on gold loans tends to be much lower than that of a personal loan. Therefore, it may be worthwhile putting you asset to work and thus reducing your cost of loan. 3. Emotional attachment will ensure timely payment: Most families have an emotional attachment to gold and that will make you morally responsible to repay the loan in time so that you can get back the gold that you had placed as a security 4. Cash flow management: In a typical loan against gold transaction, only interest needs to be paid during the tenure of the loan and the principal amount has to be repaid at the end of the tenure. This allows customers the borrower to manage cash flows better.
2. Company Profile PROFILE Future Capital Holdings (FCH) is a provider of financial services across wholesale and consumer businesses, with aspirations to grow into a significant financial conglomerate. It has a unique positioning of a financial services business, integrated with a retail chain. FCH is building financial superstores within the Retail Stores of Pantaloons Retail India Limited to create Indias first consumer-centric retailer of financial products and services. Vision: To develop a unique positioning of a financial services business, integrated with a retail chain, for ease of distribution & access to customers. To grow into a significant financial conglomerate, & provide financial services across wholesale and consumer businesses, including Asset Management, Wealth Management & Equity broking. To capitalize on the growing consumption in India, which is a key driver of the Indian economy. To be a preferred partner in helping our clients succeed in the rapidly evolving financial markets by providing innovative product solutions, high level of convenience & service supported by robust technology. Lines of Business:
Retail Financial Services
Consumer Durable Loans
Loan against Security
Loan against Property
Loan against Gold
I. Retail Financial Services (RFS): FCHs strong due diligence capabilities across asset classes - private equity, real estate and special situations - allow it to appropriately analyze risk. Revenues from RFS, for year ended 31st March 2010 stood at Rs.1,074 million with a profit of Rs.191 million. The strategy to focus on appropriate product mix, enhanced efficiency in collections, along with improved risk management processes has helped this business to turn the corner. The Company has identified this as a natural growth avenue due to the large footprint it enjoys through its group affiliates. Product offering in protection and credit widened through new tie ups with leading financial brands. With the help of new systems & technology along with Transunion, credit approvals became faster thereby reducing the disbursal lead time. Companys participation in retail portfolio buyouts on opportunistic basis has contributed significantly. Retail portfolio buyout book stood at Rs.3,640 million on the year end. We will continue to exploit such opportunities with strong first loss coverage from the originators. Going forward the Company shall focus on leveraging groups retail footprint on one hand and earn higher risk adjusted returns through secured lending i.e., asset backed lending mainly into home equity and consumption loans. 1. Consumer Durable Loans: FCH has built an excellent platform for financing the customers purchases of consumer durables like refrigerator, air-conditioner, furniture etc. from stores of Pantaloons Retail India Limited. 2. Loan against Property: FCH also provides Loan against Property. These loans are typically availed by Small and Medium Enterprises, and funds are typically used for investment in their businesses. These loans provide liquidity against valuable physical assets of the customers. 3. Loan against Securities: Loans/Overdraft facility is provided to individuals against listed liquid shares for 3 12 months for meeting short term needs, as well as to employees for funding their ESOPs. These are typically taken by customers to tide over short term liquidity issues by taking loan against the shares, without selling them. 4. Loan against Gold: These loans help the customers to unlock the value of their gold usually in the form of jewellery, to avail of funds. Customers usually take these loans for a period of 3-12 months. 8
II. Wholesale Credit FCH offers wholesale credit solutions to the customers in the corporate world, specializing in mezzanine, promoter, project and acquisition financing, and other special situations related financing. Financial Performance Future Capital Holdings standalone net profit after tax grew by 86% to Rs.173 million for the year ended 31st March 2010 93 million for the year ended 31 st March 2009. FCHs consolidated income has grown by 35% to Rs. 2517 million for the year ended 31st March 2010 from Rs.1869 million for the year ended 31st March 2009. The consolidated net profit after tax grew to Rs. 593 million for the year ended 31st March 2010 from Rs. (321) million for the year ended 31st March 2009. the fully diluted EPS on consolidated basis is Rs.9.25. Revenue from retail credit business, for the year ended 31st Marsh 2010, were Rs.1074 million with a profit of Rs.191 million. The strategy to focus on appropriate product mix, enhanced this efficiency in collection, along with improved risk management processes has helped the retail credit business to turn the corner. The company identified this as a natural growth avenue due to the large footprint it enjoys through its group affiliate. The company focus will be on leveraging this retail footprint on one hand and earn higher risk adjusted return through secured lending i.e. asset backed securities lending mainly into home equity and consumption loan. FCH Corporate lending & wholesale credit business has performed well during year grossing revenues of Rs.600 million for the year ended 31 st March 2010. This business includes promoter and project financing, acquisition funding, secured lending and other special situation related to financing. It has a loan book of Rs.7390 million for the year ended 31st March 2010. The strong due diligence and credit evaluation capabilities across asset classes, and synergies with the Future Group gives the company a competitive edge in the industry. Achievements The company achieved the highest credit rating during the year for its short term borrowing programme of 6000 mn, thereby leading to substantial saving in interest costs. Company was able to reduce the blended average cost of funds by 200bps.
3. Loan against Gold at FCFSLProduct Norms Loan is provided against gold as collateral. The loan is offered to salaried and self employed individuals. However, the loan is not offered to individuals having a negative profile. Negative Profile here means: Employees / owners of companies in the RBI list of defaulters Employees / owners of companies blacklisted by the Risk Containment Unit The term Negative Profile is only an indicative term. On the other hand, prior approval of Policy/Risk team is required before providing loan to lawyers and policemen. Maximum and minimum Loan Amount The minimum amount of loan offered is Rs.7500/- and the maximum amount can be upto Rs.2500000/-. In case of loan to a group (i.e. Group Exposure) the maximum amount of loan offered can be Rs.5000000/-. Here, a group means a family comprising of members specifically father, mother, daughter, son and daughter in law. Tenor The tenor of the loan can be 3 to 12 months. Age The minimum age of the applicant should be 21 years at disbursement and the maximum can be upto 75 years at maturity (For Self Employed/salaried) Secu...