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Gold Loans Face Margin Calls Amid Price Plunge
29 Jun
Summary
- Gold prices dropped 22% from late January's peak.
- Bullet repayment gold loans are particularly affected.
- New RBI rules aim to reduce future risks for lenders.
Local gold prices have corrected approximately 22% from their peak in late January, triggering margin calls on some gold loans. Bullet repayment loans are particularly vulnerable as the collateral value declines, while loans with regular monthly installments remain largely insulated.
The price of 24-carat gold in India is currently around ₹1.40 lakh per 10 grams, a substantial drop from its peak of ₹1.82 lakh on January 29. This correction, influenced by geopolitical events and interest rate concerns, increases the loan-to-value ratio, prompting lenders to request additional margin.
Recent Reserve Bank of India regulations, effective from April 1, have capped the loan-to-value ratio at various levels based on loan size. To comply and manage risk, non-bank lenders are increasingly shifting towards EMI-based gold loan products.
Regular EMI payments steadily reduce the outstanding principal, creating a protective equity cushion against market fluctuations. Lenders generally consider the risks manageable, particularly with gradual price declines, as they can manage loan-to-value ratios during renewals or fresh bookings.
