Covid-19 to boost gold loans to in 2020-21

Demand for gold loans, both through banks and NBFC, has grown in response to the economic impact of the pandemic

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 ($55.2 billion) 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 ($55.2 billion) in 2020-21 from Rs 3,44,800 crore ($47 billion) 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.