Gold loans from banks surge, other personal loans see moderate rise

Outstanding gold loans from banks grew more than 50% over the last one year, while all other major personal loan segments saw moderate increase amid tepid consumer demand, high inflation and tighter regulatory oversight on unsecured lending, according to latest data from Reserve Bank of India.

“Consumption moderated with elevated borrowing costs and inflation eating into household budgets,” said Crisil‘s chief economist Dharmakirti Joshi.

Growth in gold loans, or bank loans against gold jewellery–mostly taken at times of distress or during emergencies– though make good business sense, may not reflect a happy situation from borrowers’ perspective, a senior banker said.

Outstanding gold loans from banks grew by as much as 56% year-on-year to Rs 1.54 lakh crore at the end of October 18, data from RBI showed. In comparison, the growth was 13% at the same time last year.

In contrast, home loans, which are backed by mortgaged assets, saw a modest 12% year-on-year expansion against a 36% growth seen around October last year. Growth in vehicle loans moderated to 11.4% as against 20%, while consumer durable loans grew at 6.6% against 7.6%. Banks’ credit card outstanding, which is unsecured, grew at 16.9% against 28%.

More generally, banks have circumspectly reined in lending to retail and services, the RBI’s monthly state of economy report said.”Several private banks are reported to be experiencing stress in small ticket advances, credit cards and personal loans, with a rise in over-leveraged clients as well as in provisioning,” it said.Crisil’s Joshi said, “On the demand side, moderation in consumption and investment growth were a drag on GDP growth.” Second-quarter GDP growth stood at a seven-quarter low of 5.4%.

The RBI’s report, however, exuded optimism, saying festive season demand helped overcome the sluggish consumption demand observed in the second quarter.

But if inflation persists, it may be a drag on the economy. “Inflation is already biting into urban consumption demand and corporates’ earnings and capex. If allowed to run unchecked, it can undermine the prospects of the real economy, especially industry and exports,” the central bank report said.

Inflation measured by consumer price index (CPI) stood at 6.21%, a 14-month high, led by a 10.87% food inflation.

Food prices, which carry about 46% weight on the country’s CPI, remained persistently elevated, keeping monetary policy makers on guard.