Amid Covid, surge in pawned jewellery sale
Vijay C Roy
Tribune News Service
Chandigarh, July 2
Like a few of his counterparts, Mohinder Sharma (name changed) took loan against gold jewellery, typically considered to be a last resort by most households, from a non-banking financial company (NBFC). Having lost his job amid Covid-induced economic crisis, he was unable to repay the interest. This resulted in the NBFC auctioning his gold.
Sharma is not the lone example, the advertisements in newspapers announcing the auction of gold jewellery by NBFCs in the last few months indicate the severe distress faced by households. The NBFCs have a lion’s share in the gold loan segment.
Ideally, in case of a default in repayment, customers are given notice to repay. In case, they fail to repay the loan, the gold is auctioned.
Sample this, Manappuram Finance, a non-banking finance company in the gold loan segment, auctioned gold worth Rs 404 crore in the January-March 2021 period as against a total auction of only Rs 8 crore in the April-December 2020 period.
“We had an auction of around one tonne this year, which is pretty high,” VP Nandakumar, managing director and chief executive officer of Manappuram Finance, said after the declaration of the company’s full-year results in May.
Manappuram offers gold loans only for a three-month tenure while other NBFCs like Muthoot Finance gives loans for 9-12 months. Banks invariably make one-year offers.
According to NBFCs and banks, the crisis is apparent not only in urban areas but also in semi-urban and rural areas across the country. People are unable to pay the EMI of gold loan due to job losses amid pandemic and fall in gold prices. Gold prices had peaked to Rs 57,000 per 10 gram in August last year. After falling in March, gold prices have now recovered and are trading around Rs 49,000 per 10 gram.
“As people lost their jobs and their earnings were affected, they were not able to pay interest in time last year. We give one additional month to clear the dues. If that is not honoured, we are left with no option but to auction the pawned gold,” said Manish Sharma, branch manager, Manappuram Finance, Burail (Chandigarh).
Experts are of the view that the auctions would likely to be more in the coming months when gold loans with one-year tenure mature.
