Rush for gold loans seen as Indians seek refuge from slowdown
Indians may borrow more against their stash of gold as the world’s biggest lockdown raises financial stress in an economy that’s set for its first contraction in four decades.
Indians are the biggest consumers of gold after China and hold the largest hoard of the precious metal. Gold is both an insurance policy and a retirement plan in a country that lacks robust social welfare systems or widespread access to formal credit. And with economic activity coming to a virtual standstill after Prime Minister Narendra Modi ordered a 40-day nationwide lockdown to combat the coronavirus, more Indians are likely to turn to gold loan companies to raise money against the precious metal.
The lockdown is seen pushing Asia’s third-largest economy toward its first full-year contraction since 1980. As cash flows of many companies dry up in the absence of any major fiscal support, manufacturing and consumption has suffered and many firms will be forced to cut jobs to curb costs.
In India, banks were under pressure even before the outbreak, due to a shadow-banking crisis and a prolonged slump in economic growth. The country also has the world’s worst bad-debt ratio at traditional lenders. That loomed large earlier this year, with the biggest-ever bank failure in the country when authorities seized Yes Bank Ltd.