India’s gold loans a sign of distress soar to $ 8.5 billion – Quartz India

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Personal loans have increased slightly over the past 12 months. But one type of personal loan, often an indicator of household financial distress, has seen a boom.

Gold loans soared 66% in August from a year earlier to reach 62926 crore rupees (629 billion rupees or $ 8.47 billion), according to data from the Reserve Bank of India September 30. These types of loans can indicate increased financial distress among Indians. households, especially low-income families. Such loans are usually the last resort for retail borrowers as it means offering a valuable family asset as collateral. Data covers commercial banks but excludes loans made by other types of businesses focused on gold financing.

The World Gold Council estimated in 2017 that Indian households owned some 24,000 metric tons of gold, a treasure trove of $ 1.5 trillion at today’s prices, largely made up of jewelry that families inherit or are offered at weddings.

Gold loans now account for nearly 2.1% of personal loans, up from 1.2% in August 2019, according to RBI data. But there are signs that the gold lending boom appears to be slowing.

Why have India’s gold loans increased?

With businesses shutting down, job losses, and reduced wages after the pandemic began last year, many households have likely sought to pledge their gold to borrow money to meet essential expenses as well as cash. ” emergency medical needs. Small, struggling businesses may also have tried to raise funds this way.

Meanwhile, the uncertainty surrounding the Covid-19 pandemic and risk aversion have made gold lending a preferred route for lenders. These loans usually involve lending up to a specific portion of the value of the pledged gold, and the lender can auction the gold for non-payment.

The increase in gold lending in the year ending August was even higher than the 42% increase in gold lending recorded in August 2020 from the previous year.

“For banks, gold loans are the safest option because the resale value, if the loan is not repaid, is higher than any other collateral,” said a Union bank employee Bank of India. “Banks need business and people want cash… the focus is on retail borrowers.

Some private sector banks have increased the number of branches offering gold loans in rural India, where money lenders remain the norm. A lower interest rate on gold loans was another attraction for borrowers after the RBI cut rates during the pandemic.

On the other hand, if the borrowers do not repay the loan, the gold is auctioned off by the financial institutions, and the family may lose their only real asset. Many newspapers have published full page advertisements for the auction of gold jewelry by major financial institutions offering credits for gold. The Mint’s financial publication reported in August that gold finance company Manappuram Finance had auctioned off 1,500 crore gold rupees from April to June 2021, more than a triple increase from the previous year. previous quarter.

But gold lending appears to be stabilizing. While these loans increased sharply from September to March 2021, they rose 3.6% from April to August, the first five months of the current fiscal year, compared to 13% over the same period last year.

Are Gold Sales Recovering This Diwali?

Demand for gold usually peaks in India ahead of the holiday season which begins in October. But last year, against a backdrop of shutdown and high prices, sales of gold jewelry fell to their lowest level in 25 years. This year, lower prices have allowed sales to return.

In August, gold prices fell to their lowest level in four months at $ 1,677.9 an ounce, from highs of around $ 1,900 earlier this year. To boost gold sales, jewelers in India have resorted to selling online and in installments, after the pandemic disrupted in-person sales and prompted them to re-evaluate traditional ways of doing business.

Analysts believe that the recovery in gold demand could be favored due to expectations of an economic recovery around the world.

“As a result of the increase in vaccinations and the easing of lockdowns, economic activity has started to recover. In turn, retail gold demand is expected to pick up during Diwali this year, ”said Mukesh Kumar, senior analyst at World Gold Council India.

Nearly 30% of urban Indians plan to spend more on gold in the next three months than last year, according to a survey by global market research firm YouGov in August. The company’s Diwali Spending Index, an indicator of Indian consumers’ spending intention, jumped to 90.71 this year from 80.96 the year before.


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