What makes loans against gold jewellery hit among borrowers

A slew of factors led by the increasing financial distress of households, regulatory curbs on personal loans & rising prices of the yellow metal are driving the mkt

- BENN KOCHUVEEDAN

The disbursal of loans against gold in the first seven months of the financial year has grown by an astounding 50%. Many analysts see this as a sign of deepening financial distress of the households.

However, there are also other factors as well driving the growth in this segment. The regulatory pushback against unsecured personal loans being one of the primary factors. Every other segment of personal loans grew in mid-single digit during this period at a low 3.3%.

Ease of getting a loan against gold jewellery, the price of which had sniffed at ₹8,000/gram late October is another factor driving this segment. Also, being a fully secured loan product, unlike unsecured personal loans, banks charge only under-10% interest, while gold loan NBFCs charge much higher, 1.2% a month for three months. If not unpledged in the third month, the interest rate spikes to 2%. In the former scenario, a borrower pays 1.4% on an annualised basis and 24% in the case of the second event.