Newspaper advertisements from lenders with a long list of jewellery up for auction have become more commonplace in recent weeks. Lenders are auctioning pieces of jewellery against which money has been advanced but borrowers have defaulted on their repayments.
“Gold auctions have reached their highest level in the last four to five years across all types of lenders, including banks and non-banks,” said CVR Rajendran, managing director and chief executive at Kerala-based CSB Bank Ltd. Agreed Ashutosh Khajuria, chief financial officer and executive director at Federal Bank Ltd. “Auctions have gone up significantly this year,” said Saurabh Kumar, head of gold loans at non-banking financial company IIFL Finance Ltd.
Is this rise in sales of pledged jewellery a sign of income stress faced by borrowers?
Yes, but that alone does not explain what is currently happening. Bankers who BloombergQuint spoke with explained that a confluence of factors is leading to liquidation of gold jewellery collateral. These factors include the fall in prices of gold, the higher loan-to-value ratio permitted for gold loans last year and a Supreme Court order which delayed classification of defaulted loans as non-performing assets.