Gold auctions: Gold bids by lenders increase due to defaults

Gold bidding by non-bank gold lenders rose in several ways in the quarter ended December due to defaults from customers who had pledged their gold jewelry to borrow money in order to restart their activities after the first wave of Covid-19.

Muthoot Finance, a major NBFC private gold loan, for example, auctioned gold worth Rs 2,800 crore in the third quarter of 2021-22 against Rs 300-400 crore of yellow metal one year earlier.

“These gold loans were largely made in the second quarter of 2020-21,” George Alexander Muthoot, managing director of Muthoot Finance, told ET. “Some of the customers were able to repay the loan and get the gold back. Some of them failed, maybe due to the drop in cash flow. We auctioned off that gold which in turn helps customers to liquidate their liability.

NBFCs auction mortgaged gold if customers fail to repay loans on time.

Many small businesses had taken out gold loans soon after the nationwide lockdown was lifted in 2020 to restart their businesses.

However, before their businesses could fully recover, the second wave of the pandemic hit them. This has forced many to be reluctant to repay their loan.

The surge in bidding by gold lenders shows that many small businesses have yet to recover from the impact of the pandemic.

“It’s a simple reflection of market conditions that shows that even today some sectors have not rebounded or are still struggling to recover from the disruptions caused by the pandemic,” said Umesh Mohanan, chief executive and CEO of Indel Money, a Kerala. -gold loan based on NBFC.

Another driver of the auction surge was the relatively low price of gold, he said. “In turn, that had also triggered margin calls.”

Industry officials said demand for gold loans had yet to pick up this quarter amid the third wave. “Our earnings forecast was 15% for FY22. However, it could be between 10% and 15%,” Muthoot of Muthoot Finance said.

Indel Money’s Mohanan said, “We believe that gold lending will pick up as the market picks up because it would help restart many sectors and also give a boost to many lame sectors, which are all set to bounce back in the next year as the world comes to terms with Covid. Our target growth for FY23, with the addition of a few additional operating states, is hovering around 35% to 40%. »

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