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Intense competition may shrink margins of gold loan firms, says S&P

Manappuram, Muthoot not facing refinancing challenge yet

S&P, standard, poor, standard and poor's
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Standard and Poor's headquarter in New York

Abhijit Lele Mumbai
Rating agency Standard & Poor’s (S&P) on Monday said intense competition in the gold loan business in India may shrink margins of gold finance companies. However, the market leaders in this segment — Manappuram Finance and Muthoot Finance — are not facing any refinancing challenges yet.

Intense competition in certain relatively safe asset classes will also likely strain the earnings of finance companies. For example, lending backed with gold collateral in India generates strong risk-adjusted margins, bringing in many competitors.

The rating agency said short-term borrowings expose non-banking financial institutions to swings in sentiment.

Some finance companies rely on short-term