Feasibility study of gold Backed credit cards in India and their success in current market trens

1. SWAGAT
MISHRA
SHANTANU
WAGLE
swgt.mshr@gmail.com
wagleshantanu@gmail.com
8652000120
9819168618
SANDEEP
NAYAK
snayak405@gmail.com
7738838207

2. • Muthoot
Finance
Ltd,
the
largest
gold
financing
NBFC
in
the
Country
with
an
Asset
Under
Management
of
Rs.
21,000Crores
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.
• OperaUng
history
of
Muthoot
Finance
has
evolved
over
a
period
of
75
years
since
M
George
Muthoot
founded
a
gold
loan
business
in
1939
under
the
heritage
of
a
trading
business
established
by
his
father,
Ninan
Mathai
Muthoot,
in
1887.
• The
company
is
publicly
listed
and
has
a
very
strong
presence
in
the
semi
urban
and
rural
heartland
of
India.
Additionally, there was also a steady decline
in the gold prices, which prompted some of
Muthoot’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.
History
Of
Muthroot
Executive Summary
Case
ObjecUve
Study on gold backed credit cards
on the current market trends
feasibility/scope of such a product in
India

3. Gold
Price
in
the
last
5
years
Analysis
• Gold
demand
in
India
declined
by
26%
to
190.3
tonne
during
the
January-­‐March
quarter
due
to
higher
import
duUes
and
supply
curbs
imposed
by
the
government
• In
the
first
quarter
(Q1)
of
2013,
the
gold
demand
in
the
country
had
logged
in
257.5
tonne,
according
to
WGC
Gold
Demand
Trends
report.
• In
value
terms,
gold
demand
witnessed
a
fall
of
33%
to
Rs
48,853
crore
during
the
first
quarter
of
2014,
compared
to
Rs
73,183.6
crore
in
Q1,
2013.
0
200
400
600
800
1000
1200
Demand
in
Tonnes
Growth
Analysis
• Gold
prices
has
been
dropping
consistently
in
the
domesUc
bullion
market
here
on
emergence
of
fresh
selling
by
stockiests
and
investors
triggered
by
a
wider
overnight
global
sell-­‐off.
• The
fall
in
gold
prices
in
India
has
largely
remained
stable
over
the
last
three
months.
• A
stable
rupee
means
that
the
percentage
decline
in
gold
prices
in
rupee
terms
will
be
in
line
with
the
fall
in
dollar
terms.
Current market trends in gold?

4.
Analysis
• 75
per
cent
of
gold
demand
in
India
has
taken
the
form
of
jewellery.
•
More
than
two-­‐thirds
of
that
demand
comes
from
the
country’s
rural
populaUon,
where
a
deep
affinity
for
gold
goes
hand
in
hand
with
pracUcal
consideraUons
of
the
portability
and
security
of
jewellery
as
an
investment.
• regional
fesUvals
are
celebrated
with
gold:
in
the
south,
Akshaya
TriUya,
Pongal,
Onam
and
Ugadi;
in
the
east,
Durga
Puja;
in
the
west,
Gudi
Pavda;
in
the
north,
Baisakhi
and
Karva
Chauth.
• Gold
is
central
to
more
personal
life
events
too.
Gihing
gold
is
a
deeply
ingrained
part
of
marriage
rituals
in
Indian
society—weddings
generate
approximately
50
per
cent
of
annual
gold
demand.
•
Families
begin
saving
soon
aher
the
birth
of
a
girl,
and
the
‘Stridhan’,
or
gih
of
gold
to
the
bride,
gives
her
financial
security
once
she
is
married.
• Over
the
next
decade,
there
are
likely
to
be
15
million
weddings
per
year
in
India,
where
more
than
half
of
the
populaUon
is
under
25.

5. 10
40
15
25
Region
wise
Demand(in
%)
North
South
East
West
Analysis
• The
demand
for
gold
in
India
is:
• South
India
states
accounUng
for
around
40
%
of
the
annual
demand,
• Followed
by
the
West
(25
%),
• North
(20-­‐25
%)
and
• East
(10-­‐15%).
• Rural
India
accounts
for
about
65
per
cent
of
total
gold
stock
in
the
country
• Banks
view
gold
loans
for
agriculture
as
a
safer
means
to
meet
their
priority
sector
lending
targets
• Commercial
banks,
cooperaUve
banks
and
gold
loan
NBFCs
Major
players.
• Thousand
of
branches
spread
all
over
the
India.
Analysis
• Gold
emerged
a
champion
even
over
the
longer
term:
it
remained
the
best-­‐performing
asset
over
10
years
• Over
a
10-­‐year
period,
the
precious
handed
in
returns
of
19.5
percent
• Over
15
years,
gold
gained
12.7
percent,
best-­‐
performing
Indian
asset
over
the
past
five
years
• over
the
past
five
years,
gold
has
outperformed
all
other
Indian
asset
classes,
including
equiUes
and
bonds.
• Gold
offered
a
24.3
percent
return
(pre-­‐tax)
over
the
past
five
years
(compounded
annual
growth
rate),

6. Market
Size
• The
gold
loans
market
now
valued
at
7.95-­‐9
billion
dollars
is
set
to
grow
manifold
as
more
financial
insUtuUons
and
banks
enter
the
lucraUve
business.
• According
to
an
esUmaUon
of
the
Icra
Management
ConsulUng
Services
(IMACS),
the
organized
gold
loan-­‐market
in
India
stands
at
$8
billion
USD
and
is
growing
at
a
compound
annual
growth
rate
of
40
per
cent
since
2002.
Target
Market
• Having
its
roots
in
southern
India,
85
to
90
percent
of
the
gold
loan-­‐market
exists
in
states
like
Andhra
Pradesh,
Tamil
Nadu
and
Kerala.
• Keralaiets
are
very
much
fascinated
about
purchasing
of
jewelry.
So,
because
of
the
large
prevalence
of
jewelry,
the
jewel
loans
have
relaUvely
been
higher
in
Kerala,
followed
by
the
other
states
like
Karnataka,
Tamil
Nadu
and
Andhra
Pradesh.
Consumer
Behavior
•
The
easy
availability
of
gold
in
Indian
households
and
the
minimum
chance
of
consumers
defaulUng
on
loans,
is
making
the
loan-­‐against-­‐gold
market
grow
in
the
country
• Gold
has
tradiUonally
been
a
safe
asset
to
almost
every
household
in
India.
And
with
changing
trends,
it
has
emerged
as
a
convenient
means
to
avail
a
loan.
Rural
focus
• Farmers
invest
returns
from
kharif
crop
sales
on
precious
metals
even
as
prices
are
set
to
fall
further
• Demand
for
gold
is
likely
to
pick
up
in
rural
areas,
as
prices
of
the
two
precious
metals
are
on
a
downward
slide
at
a
Ume
when
harvesUng
of
kharif
crop
has
begun
in
parts
of
the
country
and
arrivals
have
started
at
mandis,
generaUng
cash
flows
for
the
farming
community.
•
Gold
prices
have
dropped
to
about
Rs
26,560
per
10
gm
Market feasibility

7. 2014
2013
Change
Top
line
49,47,43,65,002.76
53,87,13,66,541.09
-­‐0.043
Boqom
Line
7,80,06,90,535.78
10,04,23,95,229.53
-­‐0.022
Business
PromoUon
Expenses
279445066.2
331920323.3
-­‐0.0524
AdverUsem
ent
702157532.8
579143434.2
-­‐0.0123
Analysis
• The
decline
of
top
line
and
boqom
rise
has
had
its
effect
on
adverUsing
and
promoUon.
• A
negaUve
5%
in
promoUon
and
adverUsing
is
seen
RecommendaUon
• For
gold
credit
card
we
recommend
a
2%
increase
in
promoUon
to
educate
the
customer
and
1.5%
increase
adverUsing

8. Appendix
Source-­‐
hqp://firstbiz.firstpost.com/money/and-­‐the-­‐top-­‐indian-­‐asset-­‐class-­‐over-­‐
the-­‐last-­‐5-­‐years-­‐is-­‐37929.html
hqp://www.gold.org/jewellery/india-­‐market
hqp://arUcles.economicUmes.indiaUmes.com/2014-­‐10-­‐07/news/
54735618_1_jewellery-­‐trade-­‐federaUon-­‐rural-­‐delhi-­‐jewellers-­‐associaUon-­‐
gold-­‐prices
Source:
World
Gold
Council
and
Es3ma3ons
from
DGCI&S
Data
hqp://www.moneycontrol.com/commodity/gold-­‐price.html
hqp://arUcles.economicUmes.indiaUmes.com/2014-­‐10-­‐07/news/
54735618_1_jewellery-­‐trade-­‐federaUon-­‐rural-­‐delhi-­‐jewellers-­‐associaUon-­‐
gold-­‐prices
Muthroot
finance
Annual
report
2014