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Retail loans increased modestly in the last 12 months. But one type of personal loan – often an indicator of household financial distress – has boomed.
Gold loans soared by 66% in August from a year earlier to Rs 62,926 crore, according to data by the Reserve Bank of India on September 30. These types of loans can indicate increased financial distress among Indian households, especially low-income families.
Such loans are usually the last resort for retail borrowers as it means offering up a treasured family asset as collateral. The data covers commercial banks but excludes loans made by other types of firms focused on gold financing.
The World Gold Council estimated in 2017 that Indian households own some 24,000 metric tonnes of gold, a $1.5 trillion hoard at today’s prices, largely made up of jewellery that families inherit or are gifted at weddings.
Gold loans now account for nearly 2.1% of personal lending, up from 1.2% in August 2019, according to the central bank’s data. But there are signs the boom in gold lending appears to be slowing.
Factors behind trend
With businesses shut, jobs lost and salaries slashed after the pandemic began last year, many households likely sought to pledge their gold to borrow money to meet essential expenditure as well as emergency medical requirements….