Banks report 50.4% increase in gold loan demand amid financial distress
Gold Loans: Bank loans secured by gold jewelry have seen a dramatic 50.4% increase in the first seven months of this fiscal year, ending October 18, 2024. This surge contrasts sharply with other personal loan categories, which experienced single-digit growth, according to Reserve Bank of India (RBI) data.
Total outstanding gold loans reached Rs 1,54,282 crore by October 18, up from Rs 1,02,562 crore in March 2024. This represents a 56% year-on-year increase, compared to 13% in October 2023.
Bankers attribute this rise to multiple factors, including borrowers moving from non-banking financial companies (NBFCs) to banks and a preference for secured loans over unsecured options. Bank loans to NBFCs have decreased by 0.7% to Rs 1.5 lakh crore during the same period.
The increase in gold prices also contributes to the trend. “Bankers also noted that the rise in gold loans could be due to the increase in its prices, which provides borrowers an opportunity to repay old loans and secure higher new loans.” Some analysts suggest this increased demand for gold loans signals financial difficulty for borrowers.
In response to concerns about lending practices, the RBI recently directed banks and finance companies to review their gold loan policies, mandating corrections within three months. This follows an RBI review that revealed irregularities, such as disguising bad loans.
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