Falling gold prices take shine off gold loan companies2 min read . Updated: 20 Mar 2013, 10:52 PM IST
A high loan value and delayed auctions owing to regulatory restrictions suggest a crisis in earnings is around the corner
Lending against gold is not a low-default business. Rather, it reports lower losses when defaults happen simply because the loans are secured by the precious metal. Even when gold prices are falling, risks increase, but only a bit as non-performing assets are auctioned and the money is recovered. But, when the loan value is a high portion of the gold taken as security, auctions are delayed owing to regulatory restrictions or otherwise and gold prices fall, a crisis in earnings is around the corner.
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