Chasing the Glitter

The Covid-19 pandemic has led to a surge in gold loans, showing the distressing shape of the economy. But this is an opportunity for public sector banks and they have increased lending in this sector

-  Shivanand Pandit

GOLD loans have surged nearly 86 percent since March 2020 when Covid19 struck. Although credit offtake by the business and service sector stayed low over the last 12 months, retail borrowings impelled by gold loans have shown a substantial uptick. Gold loan dues mounted by around 77 percent— from Rs 27,223 core to Rs 62,412 crore— by July 2021 on a year-on-year basis. As of June 2021, the State Bank of India has approximately 339 percent growth in gold loans.

Public sector banks (PSBs), which were not eager on gold loans have discovered this as a chief growth zone. They have tapped this opportunity and increased the lending because recovery in this segment is not burdensome. Furthermore, the RBI’s step to raise the loan-to-value (LTV) ratio for such advances from 75 percent to 90 percent has aided the increase in gold loans.

The huge rise in gold loans could be an indicator of stress in rural areas, the small revenue set and micro-units. Small business firms have also experienced severe stress due to lockdowns enforced by the centre and various states. In addition, job losses, reduction in salary and decline in consumer demand have obstructed the cash flow for many firms across industries and their capacity to pay their workforces.