Gold Loan Demand Spikes as Gold Prices Touch Historic Highs

SEATTLE (Scrap Monster): The gold-backed loans in India have seen huge upsurge, triggered by record high prices of the yellow metal. The gold loan schemes by banks as well as non-banking financial companies (NBFCs) in the country are witnessing huge traction, as people consider it as the easiest and the most convenient option to borrow money to meet their immediate financial needs, especially during the pandemic situation, when common households are faced with substantial drop in incomes.

According to VP Nandakumar, MD and CEO, Manappuram Finance, loan against gold jewellery has emerged as the best available option for poorer sections to gain quick access to credit. The company’s gold-backed loan portfolio is expected to record 10-15% year-on-year expansion during the current fiscal year.

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The record high gold prices ensure that customers get maximum amount of money for the pledged gold. Until recently, banks and other institutions were allowed to distribute loans of up to 75% of the value of gold. However, the loan-to-value (LTV) ratio for gold loans by banks has been lifted to 90% until March next year, through a recent circular by the Reserve Bank of India (RBI). Meantime, NBFCs are not granted permission to lend at the higher LTV.