Kathmandu. Banks and financial institutions have started aggressively expanding loans against gold and silver collateral.
At a time when credit expansion in other sectors is in a disappointing state, the banking sector has considered it safe to issue loans against gold and silver collateral. The price of gold has been increasing steadily since the last few years. Bankers say that this increase in prices has had a positive impact on the ability of banks to evaluate their mortgages. This is the reason why gold mortgage loans have become an attractive option for banks.
According to the data of Nepal Rastra Bank, the current fiscal year 2082. As of mid-August 2018, banks and financial institutions have disbursed Rs 85.81 billion in loans against gold and silver collateral. In the first half of 2081 BS, loans were issued against gold and silver worth Rs 58.59 billion, which increased by 42.40 percent to Rs 83.29 billion by mid-July 2082. In the first two months of the current fiscal year, the loan has increased by 3.02 percent.
In the last fiscal year, the total loan of banks and financial institutions had increased by 8.4 percent. Similarly, credit expansion in the first two months of the current fiscal year is only 0.9 percent.
Banks have been investing 50-70 percent of the loan on the basis of the market value. With the rise in the price of gold, the increase in the valuation of the collateral has made it easier for the banks to increase the loan. This increase in prices has further encouraged banks to expand gold mortgage loans.
With the price hike, the Nepal Rastra Bank (NRB) had issued a directive in September last year to limit the loan of more than Rs 50 lakh to a customer against gold and silver collateral. Even after the limit was set, the loan has increased even more.
In Nepal, gold was traditionally limited to jewelry. But in the last decade, its role has emerged as a key investment option. In the past, it was customary to take a small loan from the shop that bought gold. Now, it has become easier and faster to get a loan through banks and financial institutions. Bankers say that this ease has increased its popularity among the general public.
Gold mortgage loans are often used as consumptive loans. Experts say that it is for medical expenses, small business capital, home repairs or family expenses.
Gold mortgage loans generally fall under the category of consumable loans. It provides immediate funds for emergencies. Many customers take short-term gold mortgage loans for treatment, business capital or household expenses.
Experts say that although securities loans are an alternative to immediate cash flow, they do not contribute much to productive investment.
If there is a sudden fall in the price of gold, then the risk of falling the mortgage price of banks can also increase. However, traders claim that they do not have to bear the loss of their investment in gold as the price of gold has skyrocketed in recent times.
On Wednesday, the gold price had risen to Rs 2,320 per tola while silver was Rs 2,320 per tola.
The attraction of gold mortgage loans is likely to increase further in the context of the slowdown in the economy, decrease in private sector investment and limited consumer loans.
