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New Delhi: Kanta Devi, a Dehradun resident, pawned her gold jewellery on 28 September, which included keepsakes from her late husband, for a Rs 2 lakh loan to pay for her 32-year-old daughter’s dialysis after both her kidneys failed.

A New Delhi-based beautician took a Rs 1.2-lakh loan to finance her daughter’s education in 2020 after the first Covid lockdown last year, against a pair of gold bangles worth Rs 60,000 each, after her husband lost his job.

Sampoorna, a 51-year-old migrant worker based in Mumbai, mortgaged the little gold she owned in 2020 for Rs 20,000 at two pawn shops while rushing to leave the city during the nationwide lockdown. She eventually lost the gold when she could not pay the principal amount and interest.

These are not stray cases. On account of the pandemic and the ensuing economic distress, several people across the country have been pawning gold jewellery, including heirlooms, to pay hospital bills or bail out their businesses.

In India — the world’s largest consumer of gold — it is like wearable wealth. Not only does gold hold sentimental value and is a marker of status, financial institutions also hand out loans of up to 75 per cent of the asset’s value based on the current gold price.

In the first half of 2020, personal loans extended by banks against gold jewellery stood at Rs 1.9 lakh crore, which grew to 3.54 lakh crore in the first half of 2021. This number doesn’t include loans provided by non-banking financial institutions operating in the segment like Muthoot Finance and the unorganised sector, which makes up an estimated 65 per cent of the gold loan market.

NBFCs, meanwhile, have been expanding due to the high demand for gold loans: Muthoot FinCorp opened over 100 new branches in rural and semi-urban areas across north, east and west India in 2020-2021 and Bajaj Finance Limited in Pune also increased its number of branches from 480 to 700 in the last financial year.

While gold loans are usually considered to be the last resort for households to finance a severe crunch, loan financiers say many are choosing this option for a variety of reasons, from paying EMIs, rent, and fees to recuperating losses from failing businesses — a common occurrence during the pandemic.


Also read: How Covid has changed the way Indians buy gold


Gold loans for hospital bills, EMIs, rent

According to Kanta Devi, her family tried multiple options, including seeking help from employers and people known to them, before deciding on mortgaging her gold with Muthoot Finance.

“I had no way but to pawn my jewellery to get a loan of nearly Rs 2 lakh for the treatment of my daughter. I cannot say if we will be able to prevent that from getting auctioned,” she told ThePrint.

However, her younger son Amit is more determined to pay off the loan. “Our priority is medical aid to my sister,” said Amit, who is a garment shop salesman. “My elder brother and I will work hard to repay the debt and get our mother’s jewellery back before the deadline is over.”

In Bengaluru, members of the Chetana Stree Shakti Group, a women’s self-help initiative, have even pledged their mangalsutras (wedding ornament) to pay off a collective debt of Rs 25 lakh.

The group works with the municipal corporation in Bengaluru, the Bruhat Bengaluru Mahanagara Palike (BBMP), to clear garbage and segregate waste.

The members had taken a loan to employ more personnel and buy auto tippers, which are vehicles for garbage collection, in June 2020. However, their salaries and bills have not been paid by the BBMP since November 2020 due to lack of funds, and they were forced to pledge one ornament after another to keep up with bank EMIs.

They have not been able to release any of their ornaments yet.

“We have always managed to pay the labourers as well as bank EMIs with whatever money we had at home and offset it when the bills were paid by BBMP once every three months. But not a single bill has been moved since November last year,” said 58-year-old H. Lalitha.

“We have a collective debt of Rs 25 lakh or so. I got a message from Muthoot Finance on Friday (24 September) where we have all pledged gold to repay bank EMIs for our auto tippers that they will auction our gold if we don’t pay interest. The interest alone is at Rs 35,000 per month. We have pledged even our mangalsutras and have nothing left anymore,” Lalitha told The Print.

She said she pledged every single piece of gold ornament in the house to raise money to keep the self-help group’s small business up and running.

Not everyone who takes these loans, however, are able to pay them back. Many like the migrant worker Sampoorna default on their loans and then lose their gold altogether.

If people default on loans, financiers can auction their gold ornaments and jewellery — which has increased in the past year. These financiers put off auctioning in the first half of last year since rising gold prices provided adequate cushioning, but a subsequent drop in prices led to a rise in these auctions.

Companies like Manappuram Finance, another leading non-banking institution in the gold loan segment, auctioned 4.5 tonnes of gold worth Rs 1,500 crore in the April-June quarter this year, compared to 1 tonne in the previous quarter (January-March).

According to Sampoorna, she had to let go of her gold because she had no funds to repay the principal amount and the interest accrued.

“The pawn shops called me twice to say that I have to pay up my principal amount and interest, otherwise they will sell my gold. I didn’t have any money to pay them so I decided to ignore the calls and write off that gold,” she told ThePrint.

“I didn’t even ask how much money was due with the interest. What was the point when I knew I didn’t have enough to pay up?” she said, adding that many of her employers had not paid her during the lockdown.

According to financiers, over 30 per cent of borrowers are unable to pay back their loans with interest within the stipulated time.

“All defaulters are individuals from lower income groups who are unable to conjure up funds. We mostly offer loans for three months but give them a grace of another quarter year if they want. Even after this, they are informed of the likely auction time of the pawned jewellery and every possible opportunity is offered to repay the debt,” said Micky Singh, owner of National Jewelers, a Dehradun-based chain that extends gold loans.


Also read: Jewellers sell gold for as little as Rs 100 online as digital purchases rise in India


Some selling gold for instant cash

There is also a significant section, mostly the salaried and business class, who are opting to sell their gold instead since it is a quick way to access liquidity.

Additionally, a low gold loan-to-value (LTV) is encouraging people to sell their gold for the full value instead of pawning it, as their ability to repay has been affected by the pandemic.

“Mostly, people consider selling their gold as the last resort, but people want to be more liquid now and don’t want to pay the interest so they are preferring to outright sell their gold than pawn it. These are mostly businessmen as well as salaried people,” said Amit Chaudhuri, branch manager at Muthoot EXIM in Mumbai.

Chaudhuri noted that about 100-150 grams of gold was sold by customers over the last year, while the number usually stood around 50 to 70 grams.

This is also a fallout of the economic distress induced by the Covid pandemic, which hit even the salaried class hard. For them, reasons for selling gold range from paying bills to household expenses.

A 28-year-old woman, who is employed at a private company in Bengaluru, sold a thin gold chain last week for Rs 43,000 to pay her rent and manage household expenditure for the month.

She holds a mid-management position in a private company and resorted to selling her gold when her employer began downsizing and cutting salaries due to the pandemic. “Income has reduced but bills are only increasing,” she said.

“Small business owners, lower middle class and upper middle class persons come to us to sell gold,” said Hemanth K., owner of the Bengaluru-based financier Sri Lakshmi Gold Buyers.

For businessmen, selling gold is a way of acquiring instant cash to keep their businesses running since the lockdown gave them no chance to save up or profit, Hemanth added.

“Those who come to us from upper middle class families, reasons are paying EMIs, car loans or home loans, maintaining the lifestyle they have gotten used to etc. A lot of them have lost jobs and are relying on their gold to become an investment or savings that they can encash,” he said.

It’s, however, more profitable for financiers when customers pawn gold instead of selling gold because they can charge interest.


Also read: 10-year-low interest rates, discounts — Banks, builders pin hopes of revival on festive season


Loan seekers come from varied backgrounds

Those seeking loans or looking to sell their gold come from varied backgrounds, according to financiers.

Pankaj Masson, a gold loan creditor and owner of Kumar Jewelers and president of Doon Valley Udyog Vyapar Mandal in Dehradun, said 70 per cent of gold loan seekers come from lower income groups.

“However, there are also those who need cash immediately for their businesses without facing legal formalities,” he added.

Gold consumption increased by 37 per cent in March 2021 along with the share of gold imported, possibly indicating panic-buying of gold in anticipation of a third lockdown.

According to Hemanth, during the lockdown, they had less footfall but then registered a 32 to 38 per cent increase in customers once the lockdown ended.

“Indians are very emotionally attached to gold, and selling gold is their last resort. They come to us only after they have tried managing financially in all other ways possible. Most people who have approached us in the last two years have sought to sell gold to pay for EMIs, bills, rents, interests etc.,” he said.

(With inputs from Manasi Phadke, Prithviraj Singh, Soniya Agrawal, Nikhil Rampal and Anusha Ravi)

(Edited by Rachel John)


Also read: India’s pandemic paradox: Poor pledge gold, rich buy more gold, pushing imports up by 200%


 

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