Indian banks rush to lend against $1.5t hoard of gold

Firms are expanding their gold-backed loans to accommodate families sitting on $1.5t hoard of the precious metal.

Financial firms and banks in India are using the demand for gold-backed loans to lure more customers from pawnbrokers and money lenders, reports Bloomberg.

Indian families are rushing to borrow against their jewelry as prices of the precious metal skyrocket to record highs. According to the World Gold Council, Indian households are sitting on an estimated $1.5t hoard of gold, the biggest of its kind, largely made up of jewelry, which families often inherit or are gifted at weddings.

Firms like HDFC Bank and Federal Bank are expanding the loans they make against the precious metal. India’s gold lenders, such as Muthoot Finance and Manappuram Finance, are making it easier for their clients to borrow.

Manappuram is offering gold-backed loans at the customer’s doorsteps via a 24-hour bank network since people are reluctant to leave their homes while coronavirus cases are surging in India. And it has staff and vehicles on standby to service client requests. HDFC Bank is boosting the number of branches offering such loans in rural India, where money lenders remain the norm.

The added competition could lower borrowing costs for Indian consumers, who in desperate moments of financial stress often pay exorbitant rates to informal lenders to use gold as collateral.

Here’s more from Bloomberg.