Interest rate on gold loans fall 0.35% since October 2020; here’s what banks are offering

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Since the Covid-19 outbreak, people have faced hardship mentally and economically. Due to economic distress and job losses, more people are turning to gold for their financial needs. The heightened uncertainty around the pandemic and increased risk aversion among lenders is making gold loans a preferred avenue.

Interest rates

In the last few months, interest rates on gold loans have fallen sharply. Now banks are offering gold loans at 7% to borrowers. Minimum interest rates on gold loans have dipped up to 0.35% since mid-October 2020. As per available data, some banks cut interest rates on gold loans up to one per cent between mid-October 2020 to the first week of June 2021.

Cheapest gold loan

Punjab and Sind Bank offers the lowest interest rate of 7.00% on a Rs 5 lakh gold loan, with a reimbursement period of three years. Till October 15, 2020, the PSU bank was taking 8.10% interest on the gold loan. Canara Bank and Union Bank of India (UBI) also lowered interest rates on gold loans during the same period.

Bank of India (BOI) and Canara Bank are jointly offering the second cheapest interest rate on gold loans which is 7.35% per annum.

The State Bank of India is currently offering gold loans at an interest rate of 7.5% per annum.

Gold loan demand

As per an HTF Market Intelligence report, the Indian gold loan market has witnessed a positive impact on business during the nationwide lockdown due to the pandemic. Gold loan products have experienced rapid growth than other retail banking products during this period.

Gold loan market

Outstanding loans against gold jewellery given by banks rose 82% to Rs 60,464 crore as of March 2021, from Rs 33,303 crore as of March 2020, according to data from the Reserve Bank of India.

Banks have also reported a surge in gold loans in the year ended March 31, driven by rising gold prices and risk-averse lenders demanding collateral for loans. Gold loans more than doubled to Rs 60,464 crore in FY21 from Rs 26,192 crore a year earlier.