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Covid-19: Gold loan capacity rushes to record peaks amid the pandemic

Saturday, May 30, 2020
The Indian Wire

Small business owners, people who have not been paid by their employers and the ones who are not able to earn their daily wages in the face of the lockdown are pledging family gold to raise funds. The top-7 gold financing companies are currently holding a record loan book worth Rs 85,000 crore, as per Care Ratings data. Banks are estimated to be holding gold loans worth Rs 2.35 lakh crore.

The safety vaults of leading gold finance companies and banks are filling up fast as cash-strapped individuals walk in to pawn household jewellery to save the day. The top seven gold financing companies (GFCs), which include Manappuram Finance Ltd, Muthoot Finance, IIFL Finance Ltd, Shriram City Union and Kosamattam Finance, are holding a record loan book worth Rs 85,000.

While the volumes of fresh loans are rising, there is an increasing trend among borrowers to redeem gold pledged by them a few months ago. “Savvy borrowers are releasing old pledges to sell the gold in open market to take advantage of higher prices,” said Nandakumar of Manappuram.

“I believe this phase is more like a reboot than a lockdown as most businesses are now allowed to resume operations, albeit with some restrictions on staffing. We started reopening our branches from April 20 and about 80% of our branches are working now. We expect our gold loan business to revert to normalcy once public transport resumes and local travel becomes easier”. said Nandakumar.

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