For gold loan takers, the EMI becomes higher when the gold prices go up and sometimes they fail to repay the loan. The NBFCs then have to auction the gold in the market at the prevailing rate, which may be lower than the price at which the gold was pledged by loan takers
Rohan Juneja, managing director & CEO TruCap Finance said “We see the rising gold prices to bring positive results for the business, thanks to increasing collateral coverage. However, we as a company tend to adopt more cautious steps in lending during such times with an aim to minimize the risk of loans being taken into auction to a bare minimum, if there is a sudden decline in gold prices from higher levels.”
Retail demand for gold loans has seen a steady uptick in urban as well semi-urban areas in comparison to other loan products, especially since the customers are realizing benefits and value waiting to be unlocked with gold as a collateral. “More than 70% of our disbursals are happening in semi-urban areas,” said Juneja.
Recently, there have been several factors that have supported higher gold prices, including concerns over the sudden spurt in Covid-19 cases in major cities, inflation fears, and a weaker US dollar. Additionally, the Federal Reserve has signalled that it will maintain a loose monetary policy for the foreseeable future, which could continue to support gold prices.
“We have witnessed strong growth of 5%-10% month-on-month for the last two to three quarters,” said Deepak Singhal, senior vice president, Rupeek, a new age gold loan company.
Anuj Arora, COO & Co-founder of SahiBandhu, a gold loan aggregator has experienced exponential growth in gold loans over the last few months. “The increase in gold’s price is seen as a positive by people. Within the semi-urban community, we have also witnessed growth of gold loans amongst the farming community, and Rs 1500 crore of our gold loan disbursal portfolio consists of farmers and agriculturists.” Umesh Mohanan, ED & CEO, Indel Money added “The gold price rise, in a way, benefits both the lenders or gold loan financiers and the borrowers. We expect the recent gold price rise is likely to spur growth in our gold loan portfolio. The customer queries have increased, as gold price rise boosts the sentiment of the people seeking gold loan. By leveraging our deeper understanding of the market and customer-focussed services, we are confident that we’ll continue to meet the evolving needs of the customers.”