Indians can borrow more against their gold struggle as the world’s largest lockdown increases financial tensions in the economy that is set for its first contraction in four decades.
Indians are the largest consumers of gold after China and have the largest hoarding of precious metals. Sona is an insurance policy and retirement plan in a country that lacks a strong social welfare system or widespread access to formal debt. And with economic activity coming to a virtual stalemate after Prime Minister Narendra Modi’s 40-day nationwide lockout order to combat coronovirus, more Indians are turning to gold loan companies to raise money against the precious metal There is a possibility.
Managing Director of India at the World Gold Council P. R. Somasundaram said in an interview, “Recycling and collateralized loans against gold can be expected to grow rapidly over the next few quarters.” “There will definitely be strong growth in that sector for two reasons: prices are going up – they will get more for the same grammar – and the other is that banks will not be in a position to lend in that way. That.”
The lockdown has been seen pushing Asia’s third-largest economy toward its first full-year contraction since 1980. The cash flow of many companies dried up in the absence of any major fiscal support, causing losses to manufacturing and consumption, and many companies would be forced to cut. Jobs to curb costs.
Somasundaram said, “Gold loan would be a great product.” “It is possible that gold becomes a tool for the revival of many small and medium enterprise businesses and domestic fortunes.”
In India, there was pressure before the outbreak of banks due to the shadow-banking crisis and prolonged decline in economic growth. The country also has the world’s worst debt ratio among traditional lenders. With the biggest bank failure in the country earlier this year, when officials called Yes Bank Ltd.
Once George Alexander Muthoot, managing director of Muthoot Finance Limited, one of India’s largest gold loan companies, said, “Once the lockdown is completely lifted and the travel restrictions are lifted, we can see good flow of customers in our branches Let’s hope. ” He expects an increase of 5% to 10% this financial year from current assets of Rs 40,000 crore. is.
He said that the company has raised Rs 6,000 crore in the last six months from global markets and its liquidity position is comfortable. The second largest gold lending company, Manappuram Finance Ltd, also expects to meet any increased demand for loans after raising $ 300 million in January.
Manappuram Finance Managing Director V. P. Nandakumar said in an interview, “Gold demand may increase after lockdam as the risk profile of borrowers deteriorates and lenders are at risk.” “Many non-bank finance companies are facing liquidity challenges, lending will decline further and gold lending can then become an option to collapse for borrowers who are denied access to their regular channels “, He said, gold debt can grow by 10 to 15%% this year.
With the price of gold rising to historic highs in local markets, some customers are choosing to sell the metal to repay their gold debt and take advantage of these unprecedented prices, he said.
Even as people recycle their old gold more, India’s precious metal demand will suffer this year, an industry body’s sales expected to be the lowest in 25 years. The World Gold Council, which had an estimated demand of between 700 and 800 tonnes in 2020 in January, said it would be unable to determine the impact of the virus on Indian demand in its latest quarterly update on Thursday.
“We are in the midst of a crisis,” Somasundaram said. “The only honest thing we can say is that we don’t know right now.”
By Swansea Afonso