Exclusive | Big news for gold loan companies! PSU banks to now give gold loans at low rates

Public sector banks (PSBs) may start providing gold loans to retail customers, according to sources in the government and the Reserve Bank of India (RBI). The retail loan seekers will get a loan equivalent to 75 per cent of the value of the gold. Zee Business' Kushal Gupta reports.

The government has directed PSU banks to offer gold loans to its retail customers. Another connected news with this development is that the government will provide a guarantee in case of defaults on loans disbursed by PSU banks. The news will likely have a negative impact on gold finance companies, Gupta said in his report.

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Gupta said that gold finance companies usually charge between 12 and 29 per cent interests from the customers on such loans. The banks on the other hand, will be giving gold loans to its retail customers at much lower interest rates. The interest could be at around 9-10 per cent, significantly less than the rates offered by the gold finance companies. This is likely to put an adverse impact on the businesses of the gold finance companies.

Gupta said that the reason for such a step is still unknown. 

This could be a game changer for gold NBFCs, which have a considerable presence in this sector and it will increase competition for them, Zee Business Managing Editor Anil Singhvi revealed.

Singhvi said that the gold finance companies typically keep a margin between 6-18 per cent on gold loans. These loans are generally substitute for personal loans for people who may not have a credit card or are unable to get credit from banks.

The impact will be significant as the bank branches of PSU banks outnumber the branches of the gold finance companies and have a much greater reach. Moreover, the loans have been placed along with home loans and auto loans - segments where the default is significantly low, he added.

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However, the customers will benefit from this and the liquidity situation will also improve, Singhvi added.