The prices of gold are constantly increasing. There is also a significant jump in the income of gold loan companies from the interest received from it. But with this, the risk of loss has also increased due to the fall in the rate.
According to a report, the price of gold has been steadily increasing since the beginning of the Corona era. Supporting the rising rate of gold, loan growth of some Indian non-banking financial institutions and gold loan companies is also accelerating. From March to June, Manappuram and IIFL have registered growth of about 4 to 5 percent. This has led to an increase in income from interest. For the risk faced by these companies due to the fall in the rate, the regulatory limit of the loan amount (loan to value) up to 75 percent on the gold value acts as a resistance.
Defaults can increase due to the fall in the gold rate. Especially in such a situation when the loan amount is more than the market value of the pledged gold. According to the report, the current rating of gold loan companies may also be affected due to increased risk. At present, the Fitch ratings of Manappuram Finance are BB - Muthoot Finance's BB and IIFL Finance's B + among the main companies. According to the report, the gold loan is safe. Due to the increase in gold rate, there is a possibility of a further increase in its debt. Because in the economy affected by Corona infection, it is suitable for both the lender and the borrower.
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