The pandemic has brought the worst to the forefront. People can see the impact in every aspect. Where the cost of living has risen substantially, it has become challenging on the part of the people to keep up with the ever-growing demand and the costs that they have to bear to meet the needs.
Needs and wants are an inevitable part of our life; one can’t deny that. Still, at the same time, the inflationary economy has made it difficult and complicated for the people to look straight and face their requirements without any trouble.
With a shrunk purchasing power and the need to cater the requisite for staying afloat in these difficult times has brought many at the doorstep of the financial organisations (banks and non-banking financial companies). The secured loans such as the Gold Loans are much-in-demand amidst this chaotic situation.
Why Gold Loans?
Being secured in nature, the lender and the borrower do not have to spend much time on assessing the credentials. Especially during the pandemic where the uncertainty is high, a secured loan will be profitable for those who are in pressing need of funds and at the earliest.
Gold Loans come against the precious yellow metal and with minimal documentation. The cost of Gold Loan is another feature that has grabbed the attention of many.
Gold being a precious and highly liquid asset can be deployed to acquire funds, and it is a good hedge against inflation, making it more attractive for the lenders and the borrowers. The prices are supportive currently and in favour of the borrowers. The question is, in which direction the prices will move in the time to come?
People prefer this facility because of the ease with which they can apply and avail of financial assistance. The interest has increased in these loan facilities because of the enhanced approachability where the lending institutions have come up with the option of getting funds without visiting the lender.
Another fascinating peculiarity would be that once a borrower has settled this loan, they can get a loan again if needed.
The central bank, i.e., the Reserve Bank of India (RBI) relaxed the terms in the light of the events that had taken place. The loan-to-value ratio becomes the basis on which the lender sanctions and disburses the loan amount. The ratios were somewhere between 70-80% in the pre-COVID economy but were increased to 90% to help the borrowers get an enormous amount.
The Soaring Demand of Gold Loans
The expansion of the market for Gold Loans wouldn’t be news for anyone taking into account the recent events. Indians are very much attached to this metal and have this readily available at all times in several different forms. The loan can sway the financial issue very conveniently.
As stated by the Economics Times from an interview with Mr. George Alexander, the Managing Director of Muthoot Finance, these loans have encountered a higher demand than what was expected. They are doing better than any other facility in this category. Shopkeepers and the Small and medium scale enterprises are the ones who are opting for this facility more than anyone else.
Medical expenses, working capital requirements, and the education expenses; these are some expenditures that require the person to arrange the funds on short notice and become a motivation for the borrower to get the loans against gold.
The ticket-size that we know of was much lower before the pandemic but has increased during and after the lockdown. It has gone up from Rs. 48,000 to Rs. 60,000.
It has been noticed that the customers have been repeated. The borrowers are coming back for the Gold Loans. Even though the loan-to-value ratio is higher for the banks, the non-banking financial companies continue to be in the limelight.
The gold price is volatile, and hence, the lenders hesitate while extending a higher loan amount. At the same time, the non-banking financial companies with 75% of the loan-to-value ratio have a sufficient margin of safety, initiating them to offer better options to the borrowers.
The process is straightforward, and the banks and non-banking financial companies are there to help the borrowers at every step. Whether it is concerned with relaxing the terms and conditions or providing the readily available funds with consuming much time of the borrower, the leading financial organisations have made this facility even more comfortable even during the events that are a considerable downturn.