Capital is required to accelerate the economic development of any country. If the rate of financial savings in a country decreases due to rapid economic growth, it can be compensated by increasing credit. The debt:gross domestic ratio in India is still very low compared to other developed and some developing countries. But, in recent times, the common citizen of India has started understanding the importance of credit and has started using credit more along with his savings for building material assets. Some banks ask for security to provide loans to the general public. In India, common people have security in the form of gold, hence gold loan is becoming very popular. Gold loans against loan security are being made easily available especially by non-banking financial companies. The reasons and factors for the rapidly increasing gold loan in India have been described in this article.
In India, gold loans worth Rs 39,687 crore were sanctioned by various non-banking financial companies in the first quarter of the financial year 2022-23. This amount to be sanctioned increased to Rs 62,835 crore in the first quarter of the financial year 2023-24 and It further increased to Rs 79,218 crore in the first quarter of the financial year 2024-25. Non-banking financial companies have achieved an attractive growth rate of 26 percent in the case of gold loans in the first quarter of the financial year 2024-25, while the average growth rate in other types of loans during the same period has been 12 percent. Indian citizens are becoming increasingly attracted towards gold loans. Today, gold loans are being sanctioned in large quantities by various non-banking financial companies and various banks of India. In the month of August 2024, banks and non-banking financial companies together have approved gold loans worth Rs 1.4 lakh crore, achieving a growth rate of 41 percent. Today, gold loans have the highest percentage share in the total loans of non-banking financial companies, followed by loans provided for scooters and four-wheelers at the second place, followed by personal loans at the third place with a share of 14 percent. And after this comes the number of home loan which is 10 percent of the total loan. Gold loans provided by banks and non-banking financial companies have to follow relaxed capital adequacy rules. Compared to other types of loans, the risk weight on gold loans is comparatively less. Due to this, banks and non-banking financial companies are also attracted towards providing gold loans.
Also read: World financial and investment institutions are increasing India’s economic growth estimates.
Here the question naturally arises that why has the inclination towards gold loan increased so much among the citizens of India during the last three years? The reserves of gold with the Reserve Bank of India have increased to more than 822 metric tons, but according to an estimate of the World Gold Council, the reserves of gold held by Indian citizens have increased to more than 25,000 tons, whose market price is Rs. In 2020 it was Rs 109 lakh crore. The gold reserves held by citizens in India constitute 11 percent of the total gold reserves in the world. India imports 750 to 800 tonnes of gold every year and during the last 25 years, 17,500 tonnes of gold has been imported into India and the gold reserves in India have increased by 40 percent during March 2019 to March 2024. In fact, in India, purchasing gold on the auspicious occasion of Diwali (Dhan Teras) is considered auspicious and even middle class families buy gold every year on the day of Dhan Teras. Due to this, gold stock remains available with crores of families in India. During the last few years, the Reserve Bank of India has greatly simplified the rules regarding provision of gold loans by banks and now loans against gold stock are available to Indian citizens on very easy terms. According to the traditions prevalent in India, selling gold by middle class families is not considered auspicious whereas buying gold is considered auspicious. Therefore, instead of selling the gold in the market, it is considered more appropriate to pledge the gold in the bank and get an easy gold loan against it.
And then, in recent years, the Indian stock market has been growing at a very fast pace and investments made in shares of various companies have started earning 12 percent to 20 percent per annum. This has attracted a large number of Indian citizens (retail investors) to invest in the stock market. Since gold loans have become easily available, middle class families have started taking gold loans to invest in the capital market or buy four-wheelers and construct houses. The gold loan amount has to be deposited in easy installments, hence there is not much pressure on the citizens taking gold. Due to the above reasons, there has been an incomparable increase in the number of citizens availing gold loans in India in recent years.
Since the rate of growth in gold loans provided by banks and non-banking financial companies has been incomparable, the Reserve Bank of India has recently warned the non-banking financial companies for strict compliance with the rules related to sanctioning gold loans so that these banks can There should not be any relaxation in sanctioning gold loans and gold loan accounts should not convert into non-performing assets (NPAs). If the rules regarding gold loan laid down by the Reserve Bank of India are followed in letter and spirit by the banks and non-banking financial companies, then it is not possible for the gold loan account to be converted into a non-performing asset. Yes, if a loan is sanctioned against fake gold instead of real gold, there is a possibility of the gold loan account turning into a non-performing asset. Therefore, while providing gold loan, it is necessary for banks to have definite information about whether the loan is genuine. For this, the gold should be tested thoroughly.
– Prahlad Sabnani
Retired Deputy General Manager,
state Bank of India
K-8, Chetakpuri Colony,
Jhansi Road, Lashkar,
Gwalior – 474 009
