Kathmandu. Current fiscal year 2082. In the first six months of the current fiscal year, the loans issued by banks and financial institutions against gold have increased significantly. According to the data of Nepal Rastra Bank, the loan of gold collateral has increased by 19.1 percent in the period from July to December.
Last financial year 2081. As of mid-July 2018, loans worth Rs 84.80 billion were issued against gold collateral. The amount has reached Rs 1.99 billion till December. With the addition of loans worth Rs 16 billion in a short span of time, the gold collateral loan banking system has expanded rapidly.
Compared to the same period of the last fiscal year, the growth rate of gold mortgage loans has been higher in the current fiscal year. The gold loan had reached Rs 69.42 billion by mid-January 2081 from Rs 60.78 billion in mid-July 2081. Credit expansion was limited to 14.2 percent during the period. This indicates that the attraction towards gold mortgage loans has increased significantly in the current fiscal year.
The main reason for the increase in gold mortgage loans is the abnormal increase in the price of gold. The price of gold has increased by Rs 1,22,200 per tola compared to the last fiscal year. The price of gold in the Nepali market was Rs 1,55,800 per tola. By the end of December 2082, the price had increased to Rs 2,78,000.
As the price of gold has almost doubled in a short span of time, it is seen that the tendency of the general public and businessmen to fulfill their financial needs by keeping gold as collateral instead of keeping it as a passive asset. The increase in the price of gold has also encouraged the expansion of gold mortgage loans due to the fact that more loans can be availed from the same quantity of gold than before.
Gold collateral loans are currently considered to be relatively safe loans for banks. As per the regulatory provision, banks and financial institutions can issue loans up to Rs 50 lakh against the collateral. In addition, loans can be provided up to 70 to 80 percent of the market value of the collateralized gold.
In recent times, when there is enough liquidity in the banking system, banks looking for new areas for credit expansion have started to turn to gold collateral loans. The provision of no capital charge on gold and silver mortgage loans has also made it easier for banks to extend such loans.
In this context, some banks have also announced special ‘Gold Loan’ schemes. Such schemes aim to provide easy loans at cheap interest
rates.
The rise in the price of gold in the international market has had a direct impact on the Nepali market as well. Uncertainty in the global market, inflation and inclination towards safe haven investment are driving the price of gold higher. Although the price has been fluctuating in the last few days, the overall trend is up.
Therefore, if the price of gold remains high in the coming days, the demand for gold mortgage loans is likely to increase further. The rise in prices and the liquidity of the banking system indicate that gold mortgage loans will continue to be an important area of credit expansion in the coming months.
