Gold prices have soared to an all-time high, and banks in India are outdoing one another in the rush to lend money against Indian consumers’ massive hoard of gold, the world’s biggest.
Amid a Covid-19 crisis that has decimated personal finances, consumers see the gold rally as an opportunity to borrow against their gold jewellery.
Demand for gold-backed loans has risen along with the global price for the yellow metal, which is now approaching $2,000 an ounce, allowing families to borrow larger amounts against their holdings.
The World Gold Council has estimated that Indian households are sitting on a $1.5tr stash of gold, the biggest of its kind, largely made up of jewellery, which families often inherit or receive as gift at weddings.
Gold is worn on special occasions and can make up a substantial portion of the marriage dowries of women. It also doubles up as an insurance policy and retirement plan in a country lacking a robust social welfare system.
On-demand delivery on your doorstep
Traditionally, banks have had a limited presence in India’s huge gold loan industry. As other sources of income dry up, however, they are now aggressively vying for customers with pawnbrokers and money lenders.
Many hope the competition will lower borrowing costs for hard-up consumers, often compelled to pay extortionate rates to informal money lenders to use gold as collateral.
Various firms, including HDFC Bank and Federal Bank are increasing the amount of money they lend for the precious metal. HDFC says it will raise the number of its branches offering gold loans in rural areas this year from 800 in the previous fiscal year.
In India’s rural areas, money lenders are a permanent fixture of the landscape.
Gold lenders, such as Muthoot Finance and Manappuram Finance, are making it easier for their clients to borrow.
Manappuram is even delivering gold-backed loans to customers’ doorsteps via a 24-hour bank network, as people are reluctant to leave their homes while the number of Covid-19 cases continues to surge around the country.
The nonbank financial company (NBFC) has staff and vehicles on standby to service clients’ requests.
Desperate measures in desperate times
Consultancy firm KPMG has estimated that 65% of India’s $46bn gold loan industry is dominated by informal lenders, whose interest rates can range from 25% to 50%.
In many parts of India, particularly in rural areas, the pawning of a woman’s ornaments is often viewed as a last recourse for families who have run out of options.