Gold is often seen as an auspicious asset in India with good gains and acts as a safe haven during crisis. With pandemic looming large, the yellow metal has seen a sudden spike in demand.
Tapan Patel, Senior Analyst, Commodities, HDFC Securities explaining the reason behind the picking up demand for gold-backed loans, says: “There are two reasons which are driving the rise in demand of gold-backed loans in India- one, gold prices are going high and secondly, there is a liquidity crunch in the market due to COVID-19 induced pandemic.”
These are secured loans where gold articles are taken as collateral by the lending bank or NBFC. The loan is given to borrowers against gold as a collateral. The tenure of the gold varies with every lender and so do interest rates.
India’s largest lender SBI is offering gold loans at an interest of 7 to 7.50 per cent with the processing fee of 0.50 per cent. PNB is offering gold loans at an interest rate of 8.60 to 9.15 per cent with a processing fee of 0.75 per cent. Muthoot Finance offers loans at an interest rate of 12-27 per cent.
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