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Gold loans – backed by gold ornaments as collateral – are gaining traction faster than other retail loan products in the changing contours of finance during the lockdown. Rising gold prices have also turned out to be a boon for this market as borrowers become eligible for higher loan amounts.
Both lenders and borrowers are zeroing in on this time-tested financial tool with the economy at a near standstill following the Covid-19 outbreak. For lenders, it’s the safest asset class to boost revenue and earnings even as the risk profile of borrowers deteriorates with falling income levels. For borrowers, it’s the easiest option to meet short-term needs.
“During periods of economic downturn, banks and NBFCs (Non banking finance companies) alike become risk averse and lending slows down. It is, therefore, likely that the demand for gold loans may rise in the aftermath of the lockdown,” said VP Nandakumar, managing director of Manappuram Finance, an NBFC with gold loans as its principal business.