How Did The Gold Loan Segment Grow During The pandemic?

Amid the Covid-19 crisis, distress selling of gold has been popular in India for instant financial requirements. The gold loan segment has seen large-scale growth as people required liquidity in their hands due to job loss and low wages.

The World Gold Council is expecting that the gold loans market will grow at "an annual rate of 15.7% and reach 4.617 trillion rupees in the fiscal year ending March 2022, from 3.448 trillion rupees in the year ended March 2020."

State Bank of India in its latest report stated that they have witnessed a 465.08% year-over-year growth in gold loans to 209.87 billion rupees for the previous FY's 4th quarter ended March 31. Reserve Bank of India reported that outstanding loans against gold jewellery among all banks increased to 604.64 billion rupees in March 2021 from 185.96 billion rupees in January 2020. The outstanding loans against gold jewellery have witnessed a 225.15% positive growth from January 2020 to March 2021. Compared to that, total outstanding loans of all banks grew 8.29% during the same period.

V. P. Nandakumar, CEO and managing director of Manappuram Finance Ltd., a leading Indian non-banking financial company - popular in the segment has informed that their "gold loan assets grew by 24% during 2020." The pandemic triggered the gold loan market to its next level.

It is certainly a positive touch for the gold loan segment. But it also indicates that people are being obliged to obtain loans by pledging their stored gold for immediate liquidity. As the gold prices are regularly falling now in August 2021, the gold loan segment might lose its pace, but would not lack popularity for sure. On the contrary, the rallying price of gold helped the segment to grow in the last year.

Gold loan is a segment of loan services that a customer can avail by the pledge of gold ornaments including gold coins sold (8-24 carats gold) by banks. Gold loans are available with low-interest rates across banks. Depending on the bank, the rates might vary approximately from 7% to 29%. Banks change their interest rates for gold loans depending on the global gold prices and other economic developments.