By 
COVID 19 has not only impacted the health of the citizens but also has put the economy in a very dangerous condition. Its ripple effect has caused trouble in almost all the sectors, and the banking industry is one of the worst-hit. The unpredictability and present tumultuous condition of the economy have made financial institutes overly conscious while lending. Government has taken several initiatives and has flushed the banks with the required liquidity. However, banks are still very cautious while unsecured lending loans like personal loans, unlike, of course, in the case of blue-chip borrowers. This new phenomenon has created a terrible problem for the individuals and business, and now a new potent solution which most people are relying on is a gold loan. Many financial institutes have started to specifically focus on the loan against gold to assist the borrowers and cash on to the surging market option, for instance, the scheme by Canara bank, i.e. vertical biz. Further, Leading public-sector banks like State Bank of India, Canara Bank and also smaller banks like ESAF and Ujjivan have launched new gold loan schemes to those who may need funds for emergency needs. There is some change of fortunes for the gold loan, which is evident with Mannapuram gold loans and other such gold loans lenders.
Reason for Gold loans volume surge is
Gold loans have seen a surge in volume amid the crisis. And the reason for there growth are very obvious:
- It is secured loan, and the banks and financial institutes have no or little issue in approving a gold loan. Demand for gold loans was expected to rise in the aftermath of the lockdown as the risk profiles of borrowers deteriorate, and lenders become risk-averse.
- Indians affinity for gold is no secret, and during this crisis, this yellow metal is providing refuge to people by helping them avail the required funds.
- The Reserve Bank of India has kept the risk weightage on gold loans at zero. It means financial institutions do not have to set aside capital for the loans extended as customers pledge their gold ornaments as collateral.
- The disbursal time associated with gold loans is very less; thus, it is acting as an emergency credit option during this crisis.
- The demand for credit by the individuals and business is expected to grow. Gold loans fill the lending gap created due to the Bank’s less faith on secured loans.
- Most households have seen either a reduction in incomes or loss of jobs. Gold loans are the least risky choice, as also the most feasible choice for them to raise funds to keep things ticking.
- Some priority sector like agriculture gets gold loans at way lower price than the other sectors, which adds to the allure of the gold loan.
- The overdraft facility of the gold loans is way helpful for the self-employed as this allows them to get funds even when there is zero funds in an account.
- Lastly, there is the significant LTV advantage. Financial institutes offer loans at 75% loan-to-value (LTV). However, the 30% hike in yellow metal prices in the last one year would mean the effective LTV would be closer to 52%. That leaves a considerable room open for top-up gold.
- Most of the financial advisers have advised having a diverse portfolio. So, gold acts as a green zone adding extra value to the collection. A combination of debt, equity and gold as a segment makes a good portfolio.
- It is a balancing time for both the lender and the borrower. In the case of a lender, gold can act as a safe option to earn revenue. On the other hand, in case of a borrower, it is an easy option to meet the short term goals.
- As per the generated report of the work gold council, 25,000 tons of gold are kept with the households. These are lying assets which are not being used. Out of the total, rural India is accounted to have 65% of the gold stock. With the overall trend a growth in the gold loan market has been seen. Post-COVID are showing signs of increase in demand for gold loans.
- People are also making use of gold to meet their short term goals.A short term 6 months gold loan scheme plan is also considered to be durable.
- Gold Loan is another popular option. With timely payment made, the history keeps on adding and thereby adding value and a star point. The credit score increases on its own. Loan against gold is also easy and affordable.
Gold as an asset is beneficial. Almost every household possesses gold, and it is a tradition to have and wear gold. Gold can be liquified and made use of at the right time. The unprecedented uncertainty has brought forth the importance of gold. People who made an early investment can now reap the benefits. Also, with other investment schemes keeping a downward trend, gold has shown a surge in price.
Gold Loan is also seen attractive due to its scalability. Many people don’t opt for selling the gold.rather they use it for loan purposes. Getting the returns can Mutlifold the returns as gold becomes a valuable source of income for many people. Also, gold is precious and attached to peoples heart.
