The corona epidemic has caused severe financial crisis in Indian families. This has been suggested by the rising gold auction in recent times. Gold bidding on gold loans from banks and NBFCs has increased several fold. In the wake of the inability to pay gold loan EMIs, banks are forced to sell the gold that is being held.
The financial crisis on consumers can be measured by the gold auction data run by Manappuram Finance, one of the country’s largest gold lenders. Manappuram Finance auctioned Rs 1500 crore worth of gold in the June quarter. At the same time, in its last quarter, Manappuram auctioned gold worth Rs 404 crore, but in the past nine months this figure was only Rs 8 crore.
111.5 MT of gold sold during the second wave
At the same time, according to the India Bullion and Jewelers Association (IBJA), Kovid’s second wave sold 111.5 metric tonnes of gold between April and June this year. Gujarat is in the forefront of this, where 22 metric tonnes or 20 per cent of total gold is sold. According to a Gold Demand Trend (GDT) report, Kovid’s second wave had a negative impact on income in rural India. Consumers have also sold large quantities of gold in rural areas. People were financially distressed and had to sell gold for medical expenses. According to the report, during the second wave between April and June, there was a 33 percent increase in gold recycling. That is, people have sold large quantities of gold placed in their home.
Heavy demand for gold loans
Since the corona epidemic, people have taken gold debt at record highs. According to the Reserve Bank, banks owe Rs 62,101 crore to people in one year. Until May 2020 last year, people had borrowed Rs 15,686 crore in one year. At the same time, after May 2020, gold debt amounted to Rs 62,101 crore between May 2021. This means that in the last one year, people have borrowed Rs 46,415 crore from banks. Gold loans registered a record 86.4 percent growth since March 2020. State Bank of India’s gold loan business grew by 465% in the financial year 2020-21 to reach Rs 20,987 crore.
Gold sales will increase further
According to Bloomberg, the second wave of the corona has caused the financial crisis to be higher than the first wave, and this may force people to sell their gold. After the first wave in 2020, consumers decided to take a loan against the gold they had. According to the report, the ‘total scrap supply’ of molten old gold for new designs could exceed 215 tonnes, and the Kovid-19’s third wave could reach a peak in 9 years.
Investors are facing losses
With the increase in gold auctions in the country, its investors are suffering. Gold is about nine thousand rupees cheaper from the highest. So far this year, gold has given investors a negative return. At the same time, gold asset management saw a 13 percent decrease in total AUM.
The low income group takes out a gold loan
Most of the gold borrowers are from the low income group. In the event of a financial crisis, the only option to manage the money they need is to hold gold. Banks offer gold loan easily because it is safer. Now the situation is worsened by the second wave of corona. This is why people are forced to sell gold.