As gold prices reach a new milestone of Rs 61,000 per 10 gm, the demand for gold loans has surged. However, gold loan non-banking financial companies (NBFCs) are adopting a cautious approach to minimize the risk of loans being taken into auction if there is a sudden decline in gold prices from higher levels. This is because when gold prices increase, the EMI for gold loan takers becomes higher, and they may struggle to repay the loan. In such cases, NBFCs have to auction the gold in the market at the prevailing rate, which may be lower than the price at which the gold was pledged by loan takers.

Rohan Juneja, managing director & CEO of TruCap Finance, stated that while rising gold prices could bring positive results for the business due to increasing collateral coverage, their company aims to adopt more cautious steps in lending during such times. This is to minimize the risk of loans being taken into auction if gold prices suddenly decline from higher levels.

Retail demand for gold loans has experienced a steady uptick in urban and semi-urban areas compared to other loan products. This is because customers are realizing the benefits and value of using gold as collateral. Juneja noted that more than 70% of their disbursals are happening in semi-urban areas.

Several factors have contributed to the recent surge in gold prices, including concerns over the sudden increase in Covid-19 cases in major cities, inflation fears, and a weaker US dollar. Furthermore, the Federal Reserve has indicated that it will maintain a loose monetary policy for the foreseeable future, which could continue to support gold prices.

Deepak Singhal, senior vice president of Rupeek, a new-age gold loan company, said they have witnessed strong growth of 5%-10% month-on-month for the last two to three quarters. Anuj Arora, COO & Co-founder of SahiBandhu, a gold loan aggregator, also reported exponential growth in gold loans over the past few months. He noted that within the semi-urban community, they have seen growth of gold loans among the farming community, with Rs 1500 crore of their gold loan disbursal portfolio consisting of farmers and agriculturists.

Umesh Mohanan, ED & CEO of Indel Money, added that the gold price rise benefits both lenders or gold loan financiers and borrowers. They expect the recent gold price increase to spur growth in their gold loan portfolio, as customer queries have risen due to the boost in sentiment among people seeking gold loans. Mohanan expressed confidence that, by leveraging their deeper understanding of the market and customer-focused services, they will continue to meet the evolving needs of their customers.