Gold Loan NPAs Surge 62% to Rs2,445 Crore in June 2024 Quarter: Govt

Moneylife Digital Team 10 February 2025

Personal Finance

Gold loan non-performing assets (NPAs) in commercial banks have surged by 62%, rising from Rs1,513 crore in March 2024 to Rs2,445 crore in June 2024, says the Union government. Responding to a question in the Lok Sabha, Union finance minister (FM) Nirmala Sitharaman says the overall gross NPAs for gold loans in scheduled commercial banks (SCBs) and major non-banking financial companies (NBFCs) saw an 18.14% increase over the same period.

As of 30 June 2024, the gross NPA ratio for gold loans stood at 0.22% for commercial banks and 2.58% for upper and middle-layer NBFCs, indicating a higher risk concentration among non-banking lenders.

The latest figures reveal growing concerns over the sustainability of gold-backed lending. While gold loans have been a crucial source of liquidity for individuals and businesses, the sharp increase in defaults highlights vulnerabilities in valuation, risk assessment and repayment trends.

Anand Bhadauria and Kanimozhi Karunanidhi, members of Parliament (MPs), have asked for information about the increase in gold loan NPAs during the past five years and the steps taken by the government to mitigate the risk of NPAs in gold loans.

While the government is keen to curb NPAs, FM says it has also taken measures to ensure continued access to credit for small borrowers.

In response to these rising NPAs, Ms Sitharaman says the government and the Reserve Bank of India (RBI) have introduced measures to improve risk management in gold loan disbursals and mitigate risks from rising NPAs.

Key initiatives include:

Stronger collateral assessment: Banks and NBFCs must conduct frequent reassessments using acid tests, X-ray fluorescence (XRF) analysis and touchstone testing, to ensure gold purity.

Enhanced oversight: Appraisals must be conducted under CCTV surveillance and periodic audits are mandated to ensure compliance with regulatory guidelines.

Loan-to-value (LTV) cap: To protect lenders from market fluctuations, financial institutions cannot issue loans exceeding 75% of the pledged gold’s value, with exceptions for agricultural loans.

Stricter loan terms: Bullet repayment loans cannot exceed 12 months in tenure, reducing long-term default risks.

Additionally, FM Sitharamam says the department of financial services (DFS) has instructed public sector banks (PSBs) to review gold loan portfolios sanctioned between January 2022 and January 2024, to identify potential gaps in risk assessment and valuation practices.

Notably, the 75% LTV ratio does not apply to loans for agricultural purposes, and cash disbursements of up to Rs20,000 remain permissible under guidelines issued by RBI.

"With the rising NPA trend, financial institutions are expected to tread cautiously, balancing loan growth with risk mitigation," FM added.

Comments

User

duvvuridp

1 month ago

Does this mean that the Government is failing as the present government keeps suggesting that all the NPAs of the past are a failure of the previous government? Hope the FM clarifies sometime.

GOWRISHANKAR

1 month ago

The writng on the wall is clear. Aam aadmi is struggling to survive. Our elected MPs can only shout in the Parliament for more TRP ratings but can do nothing about it as the present Sangh Pariwar set up is hell bent upon supporting the Banias. Why worry about the rest of the community. If our FM Maami does not take any strict policy decisions to mitigate the sufferings of the aam aadmi she will be accountable on the day of Judgement. Hope more sense will prevail on this JNU candidate. Galli galli mein chor hain.

gopalakrishnan.tv

1 month ago

The growth in NPAs under gold loan needs to be studied in depth by the authorities to understand and appreciate the fact that people suffer from high cost of living and resort to pledge their savings of Gold to survive . The earnings do not move along with inflation for majority of the population and the ground reality of their financial and emotional suffering reflect on the on the increase in Gold loans . Unless and until the inflation particularly the food inflation is kept under check , the poor and the weaker sections of the society will continue to suffer having multiplier effect on the economy .