Gold prices in India touched a new all-time high of Rs 47,980 per 10 gram on 18 May amid global recession fears due to the coronavirus pandemic. Lockdowns imposed by states and across the nation put a halt on economic activity for over 50 days, putting jobs and livelihoods of many at stake.
If you are facing a cash crunch and looking at options to get credit, you can choose to do so with any existing gold stored in your household with gold loans rather than opting for personal loans.
Leading public-sector banks like SBI (State Bank of India), Canara Bank and also smaller banks like ESAF and Ujjivan have recently launched new gold loan schemes to those who may need funds for emergency needs.
An estimated 22,000-25,000 tonnes of gold sit idle as assets in Indian households, according to the World Gold Council of which 65 percent stock can be found in rural India. Harvesting the potential of this stock, banks, including small finance banks (which largely lend to farmers and small businesses) are now promoting loans that can be taken by pledging jewellery or gold biscuits in your house.
6 reasons you should consider gold loans amid the pandemic:
1. Ease access
Amid the social distancing norms and easing interest rates on loans, banks are launching special schemes. For example, SBI's Krishi Gold loan facility can be applied for online over its YONO app. Note that Canara Bank's special gold loan campaign is available for customers till 30 June.
You can also walk into a bank branch and deposit gold as collateral for the loan. Thanks to net banking and other internet-based facilities, you can get the credit transferred to you almost instantly once it's approved.
Interest and installment payments, as well as checking of bank statement, can also be done online.
2. Gold prices are rising, which works well in your favour
In the last year, gold has been one of the best asset classes due to economic uncertainties from US-China trade war to COVID-19 outbreak. A rise in gold prices is favourable as it increases the market value of the ornaments or coins being pledged by you.
Lenders will also offer you loans at a lower rate as risks associated with holding them will be lower.
3. Perfect for uncertain/emergency needs
Generally, you would have to opt for a personal loan or use your credit card during cash deficiencies, both of which have high-interest rates attached to them.
Further, newly employed, self-employed, run a small business, working in the farming/unorganised sector or a stay-at-home parent, it can be difficult to prove consistency in the regular income of income to a commercial bank who disburse loans or give credit cards on credit score basis.
Gold loans come in handy for such individuals as these are instantly issued with the minimal documentation process, almost like a credit card.
Lenders like Muthoot Finance allow you to borrow as little as Rs 1,500 against the metal, helping you bridge the cashflow mismatches amid the pandemic for day-to-day expenses, medical emergency, etc until you receive your expected payments.
When you apply for a gold loan, most lenders do not take your credit score in to account as the loan is secured with the jewellery/coins that you deposit with them.
4. Formal sector lending
With an expansion in the reach of formal banking systems, individuals do not have to be exploited by relying on middlemen and informal money lenders. The organised gold loan market comprising of banks, NBFCs (non-banking finance companies) and Nidhi companies contribute to nearly 35 percent of the Indian gold loan market.
One can seek loans for Rs 1,500 to Rs 1.5 crore for interest rates as low as 7.85 percent (Canara Bank's special gold loan scheme interest rate) and for a tenure of 7 days to 10 years.
Lending from the organised sector assures safe custody of the gold you give as collateral. These institutions also provide free insurance cover on the gold.
5. Overdraft for the self-employed
Those who run businesses often need working capital to meet large or unexpected orders. Gold loans come with overdraft facility wherein money can be withdrawn directly into bank accounts to pay EMIs or any other dues, without any restrictions on the number of times one can borrow.
6. Priority sectors get cheaper loans
Agriculture is a priority sector for lenders in India. Farmers seeking loans to fund agriculture infrastructure and other farming-related activities can also seek rebate of 1 to 2 percent on interest rates.
Some NBFCs also provide cheaper loans against gold to women.
The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.