The pandemic has meant huge uncertainty in every sector but considering gold finance, it is booming in India. As a result of this loans are extended for a year in exchange for collateral securities in the form of gold. As usually bangle or necklace highlights Indian weddings. The process of lending takes 15 minutes. The process is followed by jewellery weighting and then scratched on a small square stone. After that, it tests purity 5-10 per cent.
The famous gold finance company Muthoot though is booming. Muthoot has grown steadily from the early 1950s. It has more than 5,000 branches and serving 250,000 customers per day. The total loans more than $6 billion in the year to march. Even though Muthoot is the largest finance gold-backed lenders, their assets come to $40 billion. Muthoot charges 12-24 per cent on gold loans as do its direct rivals, at the same time small lenders, which make loans that charge annual interest rates as high as 50 per cent. This makes banks, which are tiptoeing into the business, charge a bit less.
As the price of gold rises, which happened for much of the past few months but it does not affect the client’s ability to borrow. When the gold price falls at the same time the lenders risk become greater based on undermining collateral values. To provide a buffer, regulators had required the loans at less than 75% of the value of the collateral. By August 11th the gold price fell can consider as a reminder of why the buffer exists. Most of the gold finance companies including Muthoot follow the old rule. The average loan size of such companies gold loan was 50,000 rupees.
The reason behind the booming of gold finance is how cleverly it fits with Indians long-standing love for the yellow metal. On despite high tariffs rate, India has imported 8,400 tonnes of gold, it was more than the holdings of the world’s largest repository, America’s Federal Reserve. The windfalls are often channelled into gold. Even though the things go bad day today but the jewellery became the strongest collateral security. Muthoot said that what makes his business lucrative is that the borrowers should redeem their collateral. According to financial analysts, the borrowers work so hard to redeem their collateral, not just to help guard against unexpected troubles, but to adobe that good times to come.
