Covid-19: NBFCs & Banks are racing to Lend Gold Loans as Demand Surges
January 8, 2021
Indian households have one of the biggest stashes of gold kept as savings. The World Gold Council has estimated that Indian households hold at least $1.5 trillion worth of gold mainly in the form of jewellery. It is the largest private stash of gold in the entire world. Gold is one of the prominent metals in Indian culture. It is not only a status for wealth and luxury but also an important investment for the future.
However, the Covid-19 pandemic has brought about a drastic shift in the entire world, and people’s perception of gold is also evolving in India. Many people realise the potential of gold as an instrument of credit rather than an instrument of savings. This paradigm shift, triggered by the Covid-19, has led to gold loan demand rising in India.
Rise of the Gold Loan Market
Financial institutions have recognised this surge in demand and are stepping up to fill this demand-supply gap. Several lenders have come up with excellent schemes on gold loans for customers. You can use an online gold loan interest calculator to know about the details of a gold loan.
The informal lending sector in India has primarily dominated gold Loan. Local jewellers were one of the most active members of this informal lending activity. People used to pawn their gold and would get some money in return. Due to the lack of regulations and high interest rates, transactions were always biased in favour of the lender.
However, things have changed drastically in the past few years. NBFCs have stepped up and changed this market forever. It is easy for anyone to take their gold to a financial institution and get equivalent capital in return. Gold is valued as per the current market prices, and the entire sector is well regulated. The market is expected to grow at an annual rate of 15.7% and reach Rs 4.617 trillion in FY 2022 from Rs 3.448 trillion in FY 2020.
The past year has seen a massive surge in the number of people applying for a loan against gold. There are many reasons for the same. Let us have a brief look at why there has been a surge in demand for gold loans.
Reasons for Surge in Demand for Gold Loan
1. Lost Jobs
The year 2020 has presented us with unforeseen circumstances. Several companies lost their major chunk of business, and as a result, many people were laid off throughout the year. Taking a gold loan was one of the easiest options for the people laid off to take care of their family and themselves. The processing time of a gold loan is short, and the documentation required is also minimal.
2. Rising Gold Prices
2020 also saw gold prices hitting and crossing all-time high values. It tempted many people with some spare gold sitting idle in their homes to take a loan against gold. The value of gold is measured against the current market value. Therefore, these smart investors could get more capital against their gold.
3. Investment Opportunities
Despite all the bad effects it had, Covid-19 has created a few opportunities as well. 2020 became a great time to start an online business when the entire world was sitting at home. People took a gold loan to fund their business plans and started working on the projects they had put on hold a few years.
4. Easy Capital
Gold loan is also one of the easiest ways to raise capital. You can raise a substantial amount of money even if you don’t have a good credit score. Keeping gold as collateral reduces the risk associated with the loan significantly, and hence, you can avail loans at lower rates of interest. You can use an online gold loan interest calculator to calculate the actual EMI to be paid for the loan.
All these reasons have led to an unprecedented surge in demand for gold loans. The NBFCs are trying their best to cater to as many customers as possible and help them procure a loan against gold. If you seek a gold loan, comparing various lenders online based on loan amount, interest rate, and processing fee should be your first step.