NEW DELHI: With businesses shut, jobs lost and salaries slashed, many people are pledging their household gold savings to borrow money to meet their essential expenditure as well as emergency medical requirements, show official data from the Reserve Bank of India.
According to the latest RBI data, loans against gold have jumped a whopping 82% since March 2020. At the same time, consumer durables and education loans are down by 21.4% and 3%, respectively, showing how people affected by the economic stress induced by the coronavirus pandemic are prioritising their spending.
The outstanding loans against gold went up from Rs 33,303 crore in March 2020 to Rs 60,464 crore in March this year, pushing the overall personal loan portfolio of financial institutions up by 10.02%. One of the main reasons for the spike in gold loan is the increase in emergency spending due to the second Covid wave, loss of income, and reluctance of banks to give unsecured personal loans, forcing people to pull out gold ornaments and rush to banks to raise money.
According to bankers, the trend is likely to continue. “The surge in gold loans is likely to go up further. While demand for gold loan was already high even last year, we saw fresh demand from April onwards. One out of every three loan queries is about gold loan. In fact, low income and lack of collateral have forced many people to opt for that,” said a senior official with State Bank of India.
Getting personal loans has also become tough with banks becoming more cautious about unsecured loans. So, people who have lost job and still have monthly instalments to pay, are using gold jewellery as the last resort to take yet another loan. “The rejection rate is going high for personal loan criteria. We have been asked to go for additional KYCs including salary slips, and asking for collaterals including stocks and other assets. The management is very careful, considering the fear of high NPA,” an executive with ICICI Bank said.
The central bank had already warned that the direct fallout of the Covid will be on public spending. Data from the RBI reveal that loans for consumer durables plunged as much as 21.4% with loan outstanding dropping to Rs 7,307 crore in March 2021 from Rs 9,299 crore in March 2020. Education loan outstanding was also down by Rs 65,744 crore to Rs 63,805 crore.