More Indians taking out loans against gold as prices soar

Banks drawn by its security as collateral are expanding loan services for the metal

- Rohini Mohan

BENGALURU - A recurring nightmare that her home's leaky ceiling would collapse during India's monsoon season spurred Mrs Mamata Kanthayya to procure a bank loan against one of her gold bangles to get it fixed, taking advantage of record prices for the precious metal.

"My husband was upset about the family gold being pawned, but his painter's income was not going to pay for anything, so a gold loan was the only way out," said Mrs Kanthayya, 45, who works as a part-time nurse.

The 60,000 rupee (S$950) loan she got from her bank in July against her gold wedding bangle funded not only the ceiling repair, but also a new smartphone for her elder son. The bangle was bought in the 1980s for around 1,000 rupees.

Mrs Kanthayya is not alone in capitalising on gold prices, which hit an all-time peak of 8,045 rupees per gram in October and stood at 7,762 rupees per gram on Dec 6.

The soaring prices not only enable borrowers to get larger loans, but also make the lustrous metal attractive collateral for banks.

According to data from India's central bank, the Reserve Bank of India (RBI), bank loans against gold jewellery in India grew by over 50 per cent in the period from January to October, compared with the corresponding period of the previous year.

Other types of personal loans grew in the same period by just 3.3 per cent.

For Indians, the metal has a special allure. It is considered auspicious and a status symbol that is present at every wedding and celebration.

The country was the world's second-largest consumer of gold in 2023 after China, with purchases of gold jewellery by households alone worth 126 trillion rupees and weighing 25,000 tonnes.

The precious metal is also considered a store of value for use in times of hardship.