Gold loans glitter on personal loan crackdown, soaring prices
Subscribe to enjoy similar stories. The regulatory clampdown on unsecured personal loans has given a fillip to loans against the yellow metal, with gold loans soaring in the last few months. Rising gold prices on the back of escalating global conflict and uncertainty have also aided demand for gold loans, as customers reassess the value of their collateral and seek more credit against it.
Loans against gold jewellery grew at a staggering 51% in September, as against 15% in March, latest central bank data showed. On the other hand, personal loans grew at 11.4% in September, the slowest in almost four years, nearly a year after RBI raised risk weights on unsecured loans or those not backed by collateral. To be sure, at ₹1.5 trillion, the outstanding base of gold loans is a fraction of personal loans which stood at ₹14.3 trillion as on 30 September.
“When other channels of funding become tight for borrowers—as in the case with unsecured loans right now — technically, there will be a tilt towards gold loans," said Jinay Gala, director, India Ratings and Research Pvt. Ltd. “Moreover, gold prices have also been going up and borrowers take an additional loan when such events happen.
In such cases, borrowers want to use the full extent of the loan-to-value ratio owing to the increase in gold prices." Expressed as a percentage of the value of the asset, regulatory loan-to-value ceilings determine how much credit a borrower would get against a certain collateral. In case of gold loans, this is fixed at 75%, meaning one cannot get more than three-fourth of the value of pledged gold as a loan. However, banks typically have internal LTV ceilings that are lower than what is set by the regulator.
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