Gold Loan: Banks, NBFCs put auction notices as defaults rise; staring at further losses as yellow metal's value dips from 2020 peak

In the last few days, full page notice related to gold loan auctions of NBFC gold loan companies has been seen in different newspapers of the country. One can also spot banners related to gold loan auction outside many branches of the country's largest public lender that is State Bank of India (SBI).

There are several reasons behind the rise in gold loan auctions. Firstly, people are not able to pay the EMI of gold loan amid the second wave of the coronavirus pandemic, reduction in earnings, fall in gold prices compared to last year and even expectations of further reduction in the prices and witnessing the difficulties related to recovery.

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NBFC companies as well as public sector banks are giving notices related to gold loan auction to their customers, as reported by Anurag Shah, Reporter, Zee Business.

After the outbreak of Covid-19 in the country, the Reserve Bank of India (RBI) had approved the banks to give loans of about 90 percent of the value of gold in order to reduce the financial burden of the people.

Last year, when the pandemic was at its peak, the price of gold had crossed Rs 56,000 per 10 grams, but by the end of March 2021, the rate of gold fell to Rs 45,500 per 10 grams, which means the collateral kept with the banks reduced compared to the loan amount. If there is further reduction in the gold price, then the banks will have to suffer more losses.

Increase in gold loan auction, decline in gold prices are the challenges in front of the people who are taking loans due to financial difficulties because of Covid-19.