The practice of NBFCs in India – the lending of money by non-banking financial companies against pawned gold coins, bars and jewelry – has taken a hit since the demonetisation of 500 and 1,000 rupee notes on November 8, Gem Konnect reports.
Gold-loan repayments have reportedly dropped steeply as million of consumers in rural India, who use gold loans to secure their finance – “have to scramble just to get cash for everyday needs”.
The largest firms hold tonnes of gold as collateral — some reportedly more than the gold reserves of many sovereign states. Now with gold not providing the instant liquidity it traditionally has, large gold loan firms like Muthoot Finance and Mallapuram Finance are already working on remedying the situation by moving large portions of their business online. For now, however, the sector is undergoing a significant downturn.
