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Surge in Gold Loans Partly Reflects Borrower Stress, Say Lenders
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What Happened?
A recent report indicates that the rise in gold loans may be linked to borrower stress, with lenders allowing those in delinquency to borrow against gold. This trend raises concerns about the motivations behind gold-backed lending.
Key points
- 15% to 23% of gold loan disbursements went to customers more than 90 days overdue.
- Piramal Finance prohibits lending to borrowers already in delinquency.
- Bajaj Finance is shifting to longer-tenor gold loans to avoid accidental delinquencies.
- Gold loans accounted for a third of incremental retail lending in Q1FY27.
- Gold has become the second-largest retail loan category after mortgages.
Key insights
- The trend may lead to increased scrutiny of lending practices in the gold loan sector.
- Borrowers may increasingly rely on gold loans to manage existing debts, potentially leading to a cycle of debt.
- Lenders rushing into gold loans without understanding risks may face future financial challenges.
Why it matters
The increase in gold loans could indicate financial distress among borrowers, impacting lending practices.
Tags
Entities
Piramal Finance· CompanyBajaj Finance· CompanyMacquarie· OrganizationRBI· Organization
Source
Times of India
