Business activities have taken a hit due to the coronavirus-induced lockdown for two months with many even losing their livelihood. With the cash flow drying out, many Indians have turned to their emergency reserve—gold.
Indians' love for the yellow metal is no secret. But in the times of COVID, the same fondness might be helping many keep their boats afloat. Gold loans have recorded a faster growth than other retail loan products in the past couple of months.
According to a report in The New Indian Express, Kerala-based Manappuram Finance has managed to disburse about Rs 300 crore worth gold loans during the period through digital channels. This is despite the company not being able to acquire any new customers amid the lockdown. The company has been able to keep its momentum going as existing customers are increasing their borrowing against the gold already pledged with the company.
With economic stress creeping in, banks are increasingly becoming averse to giving away loans. Non-banking financial institutions are also facing acute liquidity crunch. With no other options, cash-starved Indians are betting their chances with the yellow metal.
The rise in gold loan is a win-win situation for both the lender and the borrower. With rising gold prices, while the borrower is now eligible for a higher amount, for the lenders it is the safest asset class.
"Gold loan is one of the easiest loans available for short-term needs, while lenders are going cautious on other loan products. Six-month gold loans are mostly in demand," K. Paul Thomas, managing director of Kerala-based ESAF Small Finance Bank told The Economic Times.
Identifying the gap, more lenders are planning to turn to gold lending. Last week, public sector lender Canara Bank launched a special business vertical dedicated for gold loans alone.
An estimated 22,000-25,000 tonnes of gold are lying as assets with Indian households, according to the World Gold Council. Rural India accounts for 65 per cent of this gold stock.
