Rising financial distress and the inability to meet banks’ collateral demands are forcing Indian households to give up pledged gold jewellery despite its sentimental value. Many lenders are now planning to auction jewellery pledged with them, as the second wave of the coronavirus pandemic hits customers who are typical gold loan borrowers.
As the pandemic hit last year, the central bank allowed banks to lend up to 90% of the value of the pledged gold till 31 March 2021, up from 75% earlier. Banks must maintain this loan-to-value, or LTV, at all times. After gold prices started falling this year, and the LTV reverted to 75%, lenders began pressing borrowers to bring more gold or repay some of the loan immediately. However, with incomes lost and medical expenses rising, many have had to let go of the gold, triggering the auctions.
Courtesy: Mint
