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Informist, Friday, Mar. 28, 2025

 

By Abhijit Doshi and Ashutosh Pati

 

MUMBAI – Gold loans have emerged as the fastest category in the deployment of bank credit, revealed the latest data released by the Reserve Bank of India Thursday. At INR 1.91 trillion, banks' credit outstanding against gold jewellery on Feb. 21 marked a massive 87.4% jump on year. A year ago, the rise was much lower at 15.2%.

 

In the latest period, total bank credit at INR 179.8 trillion registered a growth of 11.0%, down from 20.5% a year ago.

 

Personal loans, of which loans against gold jewellery form a part, grew by 11.7% in the latest period to INR 58.8 trillion. Growth in loans against gold jewellery outpaced all other categories such as consumer durables, housing, credit cards outstanding, education, vehicles and others.

 

"Every household in India, when it comes to gold and jewellery is really working on a tight budget. Naturally, whatever holdings they have got and budget constraints can give them a scope for a personal loan," said N.S. Ramaswamy, head of commodities and customer relationship management at Ventura Securities.

 

In recent months, gold prices have been hitting new highs in quick succession, thanks to safe haven demand driven by geopolitical uncertainty around the Russia-Ukraine conflict, the war in West Asia, and more recently the trade policies of US President Donald Trump. Notably, other investment avenues have lost much of their appeal.

 

On Mar. 20, the most active June gold contract on the Multi Commodity Exchange of India hit an all-time high of INR 89,946 per 10 grams. The most active June gold contract on COMEX hit an all-time high of $3,123.6 per ounce earlier Friday.

 

"…$3,100 per ounce is again just the beginning of the second biggest rally that could happen in gold. Every scheme that can come up from a banker or an institution or any company which will come forward would try to take advantage of the interest or the leverage that they would get out of gold," Ramaswamy said.

 

The Reserve Bank of India has cautioned against the rapid rise in bank loans against gold items. Its bi-annual Financial Stability Report had in December edition warned against breach in prudential guidelines it had observed in banks extending such loans. It said, "To address the non-adherence to prudential guidelines by the supervised entities in grant of loans against pledge of gold ornaments and jewellery, the RBI has advised SEs (supervised entities) to comprehensively review their policies, identify gaps and implement corrective measures within a specified timeframe."

 

It mentioned that these guidelines assume importance in the wake of significant growth in gold portfolio in certain supervised entities. RBI identified gaps in use of third-parties for outsourcing, discrepancies in gold valuation, inadequate due diligence and insufficient monitoring of the end use of loan funds. End 

 

US$1 = INR 85.57

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Deepshikha Bhardwaj

 

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