The Finance Ministry revealed in the Lok Sabha on Monday that there has been a significant increase in non-performing assets (NPA) related to gold loans for scheduled commercial banks (SCBs), indicating a potential strain on household finances. The NPA for gold loans in SCBs has risen by over 21 per cent, while the gross non-performing assets (GNPAs) for gold loans in SCBs and upper and middle-layer non-banking financial companies (NBFCs) have increased by 18.14 per cent from March 2024 to June 2024.
Finance Minister Nirmala Sitharaman stated that as of June 30, 2024, the gross NPA ratio for gold loans in SCBs was 0.22 per cent, while upper layer and middle layer NBFCs reported a ratio of 2.58 per cent. The organized gold loan market, which includes banks and NBFCs, is expected to surpass the ₹10-lakh-crore mark in the current fiscal year and reach ₹15 lakh crore by March 2027.
To address the rising NPAs in gold loans, the government and the Reserve Bank of India have implemented various measures. Public sector banks were advised to conduct a comprehensive review of their gold loan portfolios to ensure compliance with regulatory requirements. The RBI also advised supervised entities to review their policies and processes related to gold loans and take remedial actions where necessary.
Additionally, regulated entities are not permitted to extend loans exceeding 75 per cent of the value of gold ornaments and jewelry, and a loan-to-value (LTV) ratio of 75 per cent must be maintained throughout the loan tenure. Banks are also not allowed to issue bullet repayment loans exceeding 12 months from the date of sanction to reduce the risk of defaults.
Furthermore, the LTV ratio does not apply to gold loans extended by SCBs for agricultural purposes, and lenders can make cash disbursements up to ₹20,000 for gold loans. These measures aim to safeguard lenders against risks such as gold price fluctuations and ensure responsible lending practices in the gold loan segment.
