- With the price of gold increasing by 41% in a year, it is attractive to take loan against jewelry
Amid the RBI's tightening on personal loans and the surge in gold prices, gold loan holders are booming in the country. 51% more gold loans have been taken during September this year compared to September last year. Meanwhile, the price of gold has increased by 41%. Gold loans rose by just 15% in March this year.
On the other hand, personal loans grew by just 11.4% in September, the slowest growth in four years. In January 2023, gold loan growth was 28% and personal loan growth was 13%.
In fact, in November last year, the Reserve Bank expressed concern over the boom in unsecured retail loans. Banks were ordered to be more vigilant regarding this. Apart from that, the risk weightage of personal loans was also increased from 100% to 125%. However some outstanding gold loans are very less compared to personal loans. According to the RBI, the total outstanding gold loans as of September 30 stood at Rs 1.5 lakh crore. It is only 10.5% of the outstanding personal loan amount of Rs 14.3 lakh crore.
Jinay Gala, director of India Ratings and Research, said that when the sources of borrowing are limited, the option of taking a loan in lieu of gold or jewelery kept at home increases. Due to RBI's increasing strictness on unsecured loans, people's inclination towards taking gold loans has increased. Apart from that, the demand for gold loans has also increased due to the rise in gold prices. Due to several factors, the demand for gold loans has increased. Due to global uncertainty, gold has emerged as a more attractive asset as an investment as well as collateral. Gold loans are a more reliable and collateral based option when access to unsecured loans is limited. Its loan process is faster and requires fewer documents.
On the other hand, according to experts, even the youth are now opting to pledge gold for their consumption and travel related needs. Meanwhile, big banks are also increasing their gold loan portfolio. That is, till September 30, SBI's personal loan gold increased by 28.3% to 38,826 crores.
Gold price rose 16% in 6 months, 41% in 1 year According to the World Gold Council, the price of gold on May 13 this year was Rs 62,918 per 10 grams. Till November 8, it has increased by 16% to Rs.73,006. The price of gold has increased by 41% in the last one year. According to Goldman Sachs, by the end of 2025, the price of gold may rise to Rs.81,396 per 10 grams.
What is Loan to Value Ratio? Loan to value ratio is expressed as a percentage of the value of the asset that is pledged to take out the loan. It indicates the maximum amount of loan that can be obtained in exchange for that item or asset. As per RBI guidelines, loan to value ratio cannot exceed 75% in case of gold loans.
Image Credit: (Divya-Bhaskar): Images/graphics belong to (Divya-Bhaskar).
