Kathmandu. In recent times, banks and financial institutions have significantly increased the loan disbursement against gold and silver collateral. This reflects not only the trend within the banking system but also the state of the economy as a whole.
According to Nepal Rastra Bank, loans worth Rs 105 billion have been issued against gold as of mid-January of the current fiscal year. Such loans stood at Rs 69.28 billion in the same period of the last fiscal year. In this way, it has increased by more than Rs 35 billion in a year. Which is a significant expansion.
To understand why this growth is happening, you need to look at the state of the market. In recent years, economic activity has been relatively slow, business incomes have fallen and many sectors have been facing cash shortages. In such a situation, people from ordinary people to small businessmen have started taking loans by pledging gold as an easy way to raise money immediately. This option is becoming popular because of the fast loan available using the gold at home.
Such loans are also becoming attractive for banks. Gold mortgage loans are considered safer than other loans. This is because if the borrower is unable to repay the loan, the bank can recover its money by selling the collateralized gold. Therefore, banks and financial institutions have also increased their attention towards such loans as the risk is low. Banks are offering various offers to lend against gold collateral. This also seems to have increased the attraction towards gold mortgage loans.
Looking at the state of the total banking system, deposit of Rs 7.697 trillion has been collected and Rs 57.19 trillion has been disbursed till mid-February.
Although the share of gold mortgage loans within this large structure is still small, its growth rate is fast. This indicates a change in the lending pattern of banks. There is a growing inclination towards short-term and secured loans rather than long-term and productive loans.
There are also positive aspects of the increase in gold loans. It has made money available to the public quickly in case of emergencies. Such loans have been found to be especially useful for household expenses, health, education or small business operations. It has also become an easy option for those who do not have access to banking or find it difficult to get other loans.
However, there are some risks and concerns attached to it. If the price of gold falls in the international market, the price of gold may also fall. This can affect the credit security of banks.
Similarly, banks’ focus on secured loans could reduce loans going to industry, manufacturing, and large projects. This is likely to affect long-term economic growth.
On the one hand, the rapid growth of gold and silver mortgage loans has become a source of relief for the general public and small businesses, while on the other hand, the sluggishness in the economy, cash crunch and the risk-aversion of the banks are clearly visible.
