Demand for gold loans rises as Covid bites

Mumbai: With gold being a prominent feature in India's investment landscape, the demand for gold loans has grown due to the impact of the Covid-19 pandemic and is expected to grow to Rs 4,05,100 crore in 2020-21, according to a report.

"Demand for gold loans, both through banks and NBFC, has grown in response to the economic impact of the pandemic."As a result, outstanding organised gold loan is expected to grow to Rs 4,05,100 crore in 2020-21 from Rs 3,44,800 crore in 2019-20," the World Gold Council (WGC) said in the report, titled 'Gold loans help India weather the Covid-19 storm'.

The gold loan industry has traditionally been a pillar of support for small businesses and households in need of emergency short-term assistance and for the unorganised lending that normally co-exists with any robust gold market, WGC Managing Director (India) Somasundaram PR said. He added that the regulated institutional framework of gold loans in India has made it ubiquitous over the past decade, which is a boon.

The Covid-19 pandemic has boosted demand for gold loans through banks and non-banking financial companies (NBFCs), and the recent rise was seen some time since July 2019 when prices started moving up sharply."A 28.8 per cent rally in domestic gold price this year and the need for quick credit among small businesses will further spur gold loans' growth post the pandemic."

Gold loans will benefit not just the demand side but also the supply side dynamics, as many banks and NBFCs target this product segment on account of its acceptable risk profile, he stated.

"India's leading gold NBFCs expect their gold loan AUMs (assets under management) to grow 15-20 per cent in the current financial year.Further branch expansions of gold loan NBFCs and increased adoption of technology make the growth outlook of the gold loan market look even more promising," he added.

Somasundaram also said the market is expected to grow at an annual rate of 15.7 per cent and reach Rs 4,61,700 crore in 2021-22 from Rs 3,44,800 crore in 2019-20.

The report further stated that the gold loan industry constitutes an important pillar in supporting the financing needs of individuals and small businesses in the country. Gold is a preferred savings for Indian households as it provides capital preservation, liquidity and source of funding during bad economic times, supporting the relevance of gold as a strategic asset in India.

With the emergence of the pandemic, there has been a clear trend in increase in gold loan demand from individuals and businesses, it added.