Gold Lenders Cut Loan Duration, Seek More Guarantees Due To Price Decline

Muthoot Finance is offering discounts on interest rates to borrowers who chose to repay monthly or more frequently and Muthoottu Mini Financiers is mostly lending for 90 days now versus 270 previously

Indian companies that lend against gold are cutting tenors and seeking more collateral to protect against the plunge in prices of the precious metal. Market leader Muthoot Finance has been offering discounts on interest rates and other incentives to borrowers who chose to repay monthly or more frequently. Rival Muthoottu Mini Financiers is mostly lending for 90 days now versus 270 previously, and most large firms are disbursing amounts well below regulatory limits, which was 75 per cent of the metal's value for shadow lenders and 90 per cent for traditional banks through March 31. Gold loans had boomed over the past year as small businesses tried to revive themselves from lockdowns by pledging family jewelry that's a staple of almost all Indian households. Muthoot Finance, for instance, saw such lending increase 25 per cent over the period and the company holds 146 tons of gold, higher than the official reserves of Singapore and Sweden. "People are sentimental about their jewelery," said George Muthoot Alexander, managing director at Muthoot Finance. "They will never want to default despite a fall in gold prices as they intend to get back their pledged ornaments." Gold posted its first quarterly drop in more than two years amid improving expectations for the global economy and fading demand from exchange-traded funds. The metal has fallen more than 9 per cent in 2021 as investors trade their havens for assets that will benefit from the economic recovery. Prices in India trade near one-year lows.