Demand for gold loans rises in south India despite surging Covid cases

Demand for gold loans has increased in Kerala since the Onam festival, even as the state is also witnessing a surge in Covid-19 cases.

Loan demand is strong also in other southern states, which are reporting high Covid-19 caseloads. While top executives at gold loan companies citied health-related expenses and cash demand amid job and business losses amid the pandemic as possible reasons, the region is also witnessing an upward trend in new gold purchase.

The southern part of the country accounts for 40% of the country’s annual gold consumption.

Jewellers said jewellery purchasing trend in Kerala was particularly strong despite rising Covid cases, as people of this southern state consider gold as one of the safest investment instruments.

In 2019, India had consumed 690 tonnes of gold. Kerala alone consumed close to 70 tonnes of gold, which is about 10% of the country’s annual consumption.

Malabar Gold & Diamonds chairman Ahammed MP told ET: “The demand in Kerala for gold jewellery remains unaffected and continues to be the same as last year. In this time of pandemic where cases are increasing day by day, our precautionary measures offered at our outlets are giving confidence to our customers and that confidence is getting reflected on our gold jewellery sales.”

Simultaneously, the gold loan NBFCs are witnessing an uptick in gold loan demand post Onam.

VP Nandakumar, the managing director of Manappuram Finance, said: “The pace of new customer acquisitions has certainly picked up in Kerala after Onam, but similar trends are observed from the other southern states as well. In fact, in September, growth in gold loans in the other southern states was more than in Kerala. We are seeing good recovery in demand from the rural and semi-urban areas of northern and western states as well.”

But he said it was too early to say whether the rise in demand had any correlation with health issues arising from the rising incidence of Covid-19.

“We expect to achieve our growth guidance of 15% in the first half of this fiscal year itself. Going forward, in the second half, we look forward to achieving a further growth in asset under management of 5-7%, taking the annual growth to about 20% or so. Earlier, we had expected that the void in credit supply created by heightened risk aversion on the part of banks and NBFCs would be positive for the gold loan segment in the near term. But now, the recovery in economic activities is also beginning to contribute to demand,” Nandakumar added.

A small section of customers is also selling gold to pay off debt, said Umesh Mohanan, the executive director of Indel Money,et Jewellers who had extinguished their assets when the gold price hit the roof have emerged as prospective and potential buyers for those customers, he said.

Meanwhile, the gold loan NBFCs are now facing stiff competition especially from banks. “Leading nationalised banks are opening their dedicated gold loan counters at their branches in major cities, offering customers wider options to choose,” he said.