Updated: July 1, 2021
Cash crunch and unforeseen expenses due to lockdown and Covid pandemic seem to have prompted people to go for gold loans with the segment recording the highest credit growth of 33.8 per cent among all sectors during the 12 months ended May 2021.
Gold loan outstanding with banks rose by Rs 15,686 crore to Rs 62,101 crore as of May 2021 from Rs 46,415 crore in May 2020, according to the latest RBI data. Since March 2020 when Covid-19 hit the country, gold loan outstanding has shot up by 86.4 per cent, or Rs 33,308 crore by May 2021, RBI data says.
“This is purely the exposure of banks in gold loans. If you include the loans extended by gold loan companies like Muthoot Finance and Manappuram Finance, the outstanding will be much higher. Gold loan segment has emerged as major growth area for banks as it’s easier to get,” said an official of a nationalised bank. Public sector banks which were not very keen on gold loans earlier have found this a major growth area. On the other hand, even as gold loans rose sharply, non-food bank credit growth remained sluggish at 5.9 per cent in May 2021 as compared to 6.1 per cent in May 2020.
State Bank of India (SBI), India’s largest bank, said its gold loans skyrocketed by 465 per cent to Rs 20,987 crore in FY2020-21. High demand for gold loan could be an indication of the stress in the rural areas, low-income group and micro units. SBI charges an interest rate of 7.50 per cent and the collateral is gold which can be recovered easily if any default happens.
Pledging gold as collateral to meet financing needs has been an ever-present feature of the Indian gold market. “Indian households use gold loans to meet the financing needs for health, education and marriage, while small businesses use them for their working capital requirement,” says a World Gold Council report.
WGC said demand for gold loans, both through banks and non-banking financial companies (NBFCs) has grown in response to the economic impact of the Covid-19 pandemic. “As a result, outstanding organised gold loan is expected to grow to Rs 405,100 crore ($ 55.2 bn) in FY 2021 from Rs 344,800 crore ($47 bn) in FY 2020. Technology has been a key enabler in the growth of gold loan NBFCs in recent years,” WGC said.
In the case of Manappuram Finance, aggregate gold loan disbursements during the year went up to Rs 263,833.15 crore from Rs 168,909.23 crore in the previous year. As of March 31, 2021, its number of live gold loan customers stood at 25.9 lakh. Despite the 10-12 per cent decline in gold prices, Muthoot Finance managed to grow the loan book by four per cent quarter-on-quarter, which is encouraging. Even in the second Covid wave, loan demand is likely to remain high as customers’ cash flows will be stressed. Manappuram Finance auctioned gold worth Rs 404 crore during the quarter ended March 2021, as against just Rs eight crore worth of gold auctions held during the first three quarters of financial year 2021, indicating the growing stress among borrowers.
Meanwhile, credit to agriculture and allied activities continued to perform well, registering an accelerated growth of 10.3 per cent in May 2021 as compared to 5.2 per cent in May 2020, the RBI said.
Credit growth to industry decelerated to 0.8 per cent in May 2021 from 1.7 per cent in May 2020. Size-wise, credit to medium industries registered a robust growth of 45.8 per cent in May 2021 as compared to a contraction of 5.3 per cent a year ago. Credit growth to micro and small industries accelerated to 5.0 per cent in May 2021 as compared to a contraction of 3.4 per cent a year ago, while credit to large industries contracted by 1.7 per cent in May 2021 as compared to a growth of 2.8 per cent a year ago, according to the RBI data.
Credit growth to the services sector decelerated to 1.9 per cent in May 2021 from 10.3 per cent in May 2020, mainly due to deceleration in credit growth to NBFCs, transport operators and commercial real estate. Personal loans registered an accelerated growth of 12.4 per cent in May 2021 as compared to 10.6 per cent a year ago, primarily due to accelerated growth in vehicle loans and credit card outstanding.
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