How did the gold lending segment develop during the pandemic?
In the midst of the Covid-19 crisis, selling distressed gold became popular in India for instant financial need. The gold lending segment has seen large-scale growth as people need cash due to job loss and low wages.
The World Gold Council expects the gold lending market to grow at “an annual rate of 15.7% and reach 4.617 trillion rupees in the fiscal year ending March 2022, up from 3 448 trillion rupees during the fiscal year ended March 2020 ”.
The State Bank of India, in its latest report, said it recorded 465.08% year-on-year growth in gold lending to Rs 209.87 billion for the 4th quarter of the previous fiscal year closed on March 31. among all banks increased to 604.64 billion rupees in March 2021 from 185.96 billion rupees in January 2020. Outstanding loans against gold jewelry saw positive growth of 225.15% from January 2020 to March 2021. Compared to this, the total outstanding loans of all banks increased 8.29% over the same period.
Vice Chairman Nandakumar, CEO and Managing Director of Manappuram Finance Ltd., a leading Indian non-bank financial company – popular in the segment, said their “gold lending assets grew by 24% in 2020”. The pandemic has taken the gold lending market to its next level.
This is definitely a positive touch for the gold lending segment. But it also indicates that people are forced to obtain loans by pledging their stored gold for immediate liquidity. As gold prices are dropping steadily now in August 2021, the gold lending segment might lose its momentum, but certainly would not run out of popularity. On the contrary, the rise in the price of gold has helped the segment to grow over the past year.
Gold lending is a segment of lending services that a client can avail of by pledging gold ornaments, including gold coins sold (8-24 karat gold) by banks. Gold loans are available with low interest rates at all banks. Depending on the bank, the rates can vary from around 7% to 29%. Banks change their interest rates for gold lending based on global gold prices and other economic developments.
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Article first published: Wednesday August 11, 2021, 8:14 PM [IST]