MUMBAI: Record growth in gold loans sanctioned by banks and non-banking finance companies is seen to be the trigger for RBI to step in and ask lenders to fix gaps in accounting for these loans to avoid a build-up of bad debt on their books.
Gold loan sanctions in Q1 FY25 grew 26% year-on-year and 32% over the March quarter, with the total sanctioned amount equalling Rs 79,217 crore, data by the Finance Industry Development Council showed.The increase is not a one-time occurrence but has been consistent over several quarters. During April-June 2023, the increase was 10%.
This increase is despite stiff competition from banks in the segment. According to RBI’s sectoral data on bank credit for Aug 2024, gold loans grew nearly 41% year-on-year to Rs 1.4 lakh crore.
On Monday, RBI had directed banks and finance companies to review their gold loan policies and procedures, and to rectify any deficiencies within three months’ time. This followed a review that uncovered irregular practices such as hiding bad loans as well as evergreening loans through top-ups and roll-overs without proper appraisal.
While gold loans are easy to access, given the collateral, they are treated as the last resort borrowing by those who unable to tap into other sources of funding.
The growth in gold loans is more than double the overall NBFC industry’s growth, which saw loan growth of 12% year-on-year. Other segments that have grown at a high rate are loans for new and used cars. The next biggest segment in terms of sanctions is personal loans, which account for 14% of NBFC lending. This is followed by home loans which are 10% of industry loans. Property loans and unsecured business loans stand at a little over 8%.
Source Agencies
