Surge in gold loans, sharp uptick in auctions may be hiding a larger pain

The drop of 5-7% in gold prices after March 2021 has added to borrowers' woes, triggering margin calls and auctioning off of jewellery pledged by customers

George Alexander Muthoot, the managing director of Muthoot Finance, is of the view that his company knows the business of lending against gold better than most: “We work closely with our customers and understand their needs better. I have not seen signs of stress in our business.” What he will not say explicitly is that this may not hold true for banks. He limits himself to a cryptic, “We do it better than them.” And therein lies a tale.

Gold loans have surged nearly 85 per cent over the past year, to Rs 60,464 crore. The trigger is the Covid-19