Gold Loans Become Popular As Banks Emphasise More on Safety

Gold loans are heading to become the fastest-growing loan segment in a year where there were consistent pains of the COVID-19 pandemic. Banks are becoming more focused on low-risk growth. According to the Reserve Bank of India (RBI) sectoral data, as of 27 August, pending loans taken by pledging gold jewellery stood at Rs 62,926 crore, which is 66% higher when compared on a year-on-year (y-o-y) basis.

Lending loans against gold when compared to housing loans has been seen as the most secure form of retail lending. In order to increase their retail books safely, public sector banks also have made a vigorous push in the segment over the last few years.

In August 2020, the sanctioned loan-to-value (LTV) ratio concerning loans taken by pledging gold jewellery and ornaments for non-agricultural reasons was increased to 90% from 75%. This rule was pertinent up to 31 March 2021.

As per industry analysts, irrespective of a higher LTV ratio ending in March 2021, banks have aggressively continued to hand out gold loans. Nevertheless, the COVID-19 second wave hurt collections via gold loans across lending institutions in April and May. Borrowers were not in a position to travel often, and hence they were not able to put in extra margins to cover for the increasing gold prices, which resulted in many accounts becoming non-functional.

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