Chennai: A record-high price is giving an opportunity for gold loan borrowers to sell off their pledged gold and settle the loan or opt for a foreclosure and borrow more for the same gram of gold.
According to RBI regulations, up to 75% of the value of the gold can be lent. Rising gold prices have meant that loan-to-value (LTV) is higher by Rs 500 per gram on the same jewellery. Private gilt lender Manappuram Finance MD & CEO V P Nandakumar said, “It is true that we have been seeing a new trend of gold loan customers settling their pledges in order to sell the gold in the scrap market and take advantage of the prevailing high gold price. This trend was at its peak in May, when the lockdown was lifted and branches reopened, and it is gradually coming down over the past two months.” “Before the lockdown, the LTV stood at Rs 2,850 per gram and currently it stands at Rs 3,350 per gram of 22 carat gold,” Nandakumar said. A good part of the quarter was lost to lockdowns, and with public transport not functioning in most parts, customer footfalls at the branches were low. Therefore, the growth came mostly from existing customers who benefited from the increased LTV driven by increased gold prices. Customers have made use of our digital channels to increase their borrowings against their existing pledges.
An official from City Union Bank said “With the gold price skyrocketing, we see our customers rushing to close their existing gold loans, by which they could borrow at higher against the same gold (jewellery). After deducting the interest, customers will get Rs 5,000 more for every one sovereign of gold (8 gram).”
Karur Vysya Bank has seen gold loan borrowings against the already pledged jewellery go up by 15%-20%. “We do see borrowers keen to take advantage of this rise in gold price, especially with higher demand from farmers in the delta region. However, we have not made any revision on the LTV, as we do not know when the price would crash.”
While many lenders are treading cautiously, the cushion appears the easy liquidity of gold. “Normally, it’s a 3-month loan fully asset-backed. While people say prices have reached speculative orbit, some analysts are still bullish. We are seeing many customers sell their pledged gold,” said Y S Chakravarthy, MD & CEO of Shriram City Union Finance.
With inputs from Rajesh Chandramouli