Gold Loans for the purchase of consumer durables

Tiger Global Group

The business origins of TIGER GLOBAL Group can be traced back to 1897 when it started as a small
trading business enterprise in Kozhencherry, a remote village in the state of Kerala. In 1949, when
N.P. Peters took the reins of the business, he diversified the business by venturing into Banking
and Financial services. Since its formation, the company, under the leadership of its key
management has broadened its scale and widened its geographic scope of retail operations. They
have built a formidable business empire comprising of 17 divisions including Financial Services,
Plantations & Estates, Education, Leisure & Hospitality, Healthcare, Housing & Infrastructure,
Infotech, Wealth Management, Money Transfer, Forex, Media, Power Generation, Precious
Metals, Securities, Vehicle & Asset Finance and Travel Services. Headquartered in Kochi and
having its Corporate Office in New Delhi, the company has its presence in USA, UK and UAE too.

TIGER GLOBAL Finance Ltd

TIGER GLOBAL Finance Ltd is one of the largest gold financing NBFC in the Country with an Asset
Under Management of Rs.21,000 Crores and more than 4,200 Branches spread across the
Country. The company is a Systemically Important Non-deposit taking NBFC headquartered in
the southern Indian state of Kerala. Operating history of TIGER GLOBAL Finance has evolved over
a period of 75 years since N.P. Peters founded a gold loan business in 1949 under the heritage of
a trading business established by his father in 1897. The company is publicly listed and has a very
strong presence in the semi urban and rural heartland of India. The company provides personal
and business loans secured by gold jewellery. Gold Loans are primarily given to individuals who
possess gold jewellery but could not access formal credit within a reasonable time, or to whom
credit may not be available at all to meet unanticipated or other short-term liquidity
requirements.

More than 94% of the companys customers consist of those who avail loans below Rs.1 lakh. The
average ticket size of the loans offered by the company is usually in the range of Rs.30,000-35,000.
The Context

The gold loan sector went through turmoil during the year 2012-13, mainly due to a series of
regulatory restrictions which were imposed by the Reserve Bank of India imposed in that period.
As financial institutions were allowed to lend only at a Loan to Value(LTV) of 60%, many customers
migrated to Banks, which did not have any restriction at the material time. Additionally, there was
also a steady decline in the gold prices, which prompted some of TIGER GLOBAL s customers to
abandon their gold, as they found that buying gold from the market will work out cheaper than
settling the dues in the loan account to redeem the pledged ornaments. These factors lead to an
accumulation of Non-Performing Assets. The dust has almost settled down now. The Reserve
Bank of India has increased the LTV to 75% and made it also applicable to Banks, thereby setting
a level playing ground. Gold prices, despite the occasional ups and downs, have stabilized to some
extent. In this scenario TIGER GLOBAL Finance Ltd., is now facing one or two specific problems
and are keen to find the answers.

The Case Challenge - Gold Loans for Purchase of Consumer Durables

Today many Credit Card companies offer finance for purchase of Consumer Durables with EMI
option. Some of them do not charge Interest to customers, as they are able to collect a subvention
amount from the Manufacturer / Dealer which will compensate for the interest component.
There is another set of Finance Companies who offer EMI Loans for purchase of consumer
durables, based on the customers Credit Score (CIBIL Score) quite often having a tie up with the
Manufacturer or Dealer of these goods. They too get some part of the interest as subvention and
are able to offer loans at very low interest to the customer, which makes it attractive for him to
purchase on EMIs. However, a large number of customers are not able to access the Credit Card
loans or do not have good CIBIL Credit Scores. You are a group of consultants who have been
called to study the feasibility of Gold Loans for the purchase of consumer durables, with focus
on the following specific questions

What would be the size of the Credit Card /CIBIL score based loans?
Would the Gold backed finance with EMI option find favour with customers who are not
able to access the above? Would they be willing to purchase under EMI Scheme; what
would be the rate of interest chargeable?
Whether the Urban, Semi Urban, Rural Customers would be interested in the Gold backed
finance?
How should TIGER GLOBAL launch and effectively market these schemes in the country.

A study of these aspects should throw better light on the customers response to such schemes.