The LTV (loan to value ratio) on gold loans is one of the leading features offered by gold loan companies. In the Covid-19 pandemic time, several borrowers are taking gold loans to increase their cash reserve. Also, RBI has now allowed the LTV on gold loans as up to 90% for banks and 85% for NBFCs (non banking finance companies).
Are you looking for ways to fund your needs when there’s a shortage in income? Many people are; and gold loans can help. LTV is the percentage of loan amount that the lender can offer borrowers based on the value of the gold provided as security. For NBFCs, the LTV on the yellow metal is up to 75%. The lender can allow prepayment if LTV goes beyond this limit. Because of a price hike and increase in LTV, we’re seeing more people apply for loans against their gold.
Gold loans are one of the fastest growing financial products in India. There are several reasons for this high demand for gold loans during the Coronavirus, but even though the demand has decreased since the crisis is almost over, there is still a considerable Gold Loan interest rate of people towards gold loans. One of the main reasons why people go for gold loans is to save their investment and ensure that they get instant liquid cash in case of any emergency which may arise due to a natural disaster or any other reasons.
Reasons for High Demand of Gold in the Early Covid Pandemic Era:
Hike in International Gold Prices
The gold price in India is influenced by the international prices of the precious metal. With a rise in Covid-19 cases around the world, economic slump and increased US China tensions, gold price has risen internationally.
The government announced several economic stimulus packages. It also was not just for investors but also for the ordinary public to use their idle funds to invest in gold. The Reserve Bank of India came up with a norm of moratorium on loan repayments, so many people felt that they could invest it in gold with the falling interest rates on other investments. Also, the stock markets were volatile at that time.
Currency Exchange Rate
Gold price has also gone up because of the ongoing lockdown in India. With the increase in import tariff on gold by the government and high gold imports on a high exchange rate, the price of the precious metal also increases.
Change in Gold Price and Impact on LTV and Gold Loan Amount
The fall in prices is a positive factor for borrowers and buyers. First, as the price falls, the amount available for loan amounts to also decrease. For an existing borrower, banks may request a prepayment of the loan amount. If there is a substantial gold price correction of the yellow metal, higher interest rates on loans are likely to be imposed.
Covid-19 had a huge impact on the economic situation and this was reflected in all financial products including gold. Investors sought safe investments, which led to an increase in their investments in gold. This was one of the reasons why they became borrowers of gold loans under the NREGA scheme. In fact, lenders considered borrowers wanting to take up a loan based on gold as good customers because of their high repaying capacity.
Though the Coronavirus is now under control, its repercussions are still felt with regards to gold prices. Many essential materials for everyday life have been depleted and new restrictions have been placed upon travel. The global financial market was hit hard by these developments causing many countries to slash interest rates.
It is to be seen how the demand for gold loan fluctuates henceforth. With changes in gold prices, it is to be seen how the existing gold loan borrowers may have to provide more security to the bank. Or, they have to make prepayments to bring the loan-to-value ratio as per the conditions mentioned in the loan agreement. With changes in gold prices, it is to be seen how the existing gold loan borrowers may have to provide more security to the bank. Or, they have to make prepayments to bring the loan-to-value ratio as per the conditions mentioned in the loan agreement.
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