Banks, private lenders see a surge for gold-backed loans

Aurangabad, Jan 23:

With squeezing household incomes for most of the families due to loss of jobs, pay cuts and closing of businesses, more and more people are opting for gold loans. This has attributed to the surge in gold-backed loans.

After upliftment of the lockdown, more people are coming to banks, jewellers and gold loan lenders to sell or mortgage their gold to get cash in hand. Gold lending has benefited greatly from the RBI's recent cuts in interest rates on loans. Interest rates, which were 12 to 13 per cent last year, have now come down to seven to ten per cent. Therefore, for those who do not have other solid assets for collateral or want to borrow small amounts for a short period, gold mortgage loan has become a reliable option. From all nationalized banks, private banks and co-operative banks, about 75 per cent loans, are being given on gold. According to sources, the number of borrowers is high among rickshaw drivers, small traders and shopkeepers. The loan is given by the gold valuer after completing all the documentation and tests in the banks and fixing the price as per the market.

Turnover of eight to nine hundred crores

From private lenders to co-operatives and government banks, there is a huge demand for gold loans. During the lockdown period, the demand has increased many times, and the monthly turnover in the district is around Rs 800-900 crore, said sources.

Increase in LTV ratio

Also, gold loan providers surged after RBI decided to increase the permissible loan to value ratio for gold loans to 90 per cent from 75 per cent till March 2021. This has also made gold loans favourable for those financially hit by Covid-19 pandemic and are looking for funds to meet their requirements.

Lower interest rates

According to experts, people are turning towards gold loans is because the interest rate of a personal loan or credit card borrowing ranges from 10 to 16 per cent and from 16 to 32 per cent p.a respectively. Apart from this, there are some private companies that lend up to 95 per cent of the value.