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Gold Price Fall Force Loan Companies To Lower Tenure, Seek More Collateral


Amid softening in gold prices domestically to levels of Rs. 44910 per 10 gm, gold financing companies are seeking more collateral as well as reducing tenure.
Further some of the financiers including top ones such as Muthoot Finance are incentivizing borrowers who are making frequent repayment say monthly. Further to prevent any risk, gold loan companies are disbursing loans much lower than the allowed limit i.e. 75% of the metal's value for shadow lenders and 90% for conventional lenders through March 31.

Gold Price Fall Force Loan Companies To Lower Tenure, Seek More Collateral

Also, the lending tenure has been reduced sharply to 90 days from 270 days.

In the past one year, there has been a record surge in gold loan as businesses to tide over the coronavirus led crisis pledged their family's gold. Consequently, lending over the tenue registered a surge of 25% and the company's holding of gold amounts to as much as 146 tonnes which is higher than the official reserves of Singapore and Sweden.

"People are sentimental about their jewelery," said George Muthoot Alexander, managing director at Muthoot Finance. "They will never want to default despite a fall in gold prices as they intend to get back their pledged ornaments."

Gold clocked its first quarterly loss in over 2 years as signs of economic recovery became imminent and further there was reduced demand for ETFs. In India, noticeably gold is trading near its one-year low. And now amid economic rebound, investors are trading safe-haven for investments that may boom amid economic resilience such as equity and even bond as there has been logged a surge in bond yield.

The risk what is emanating and worrying lenders in the field is amid a resurgence in Covid 19, even the most diligent of repayers may falter and default on the repayment.

Story first published: Monday, April 5, 2021, 16:41 [IST]
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