By Shashank Didmishe
The government on Friday said that it has increased the basic import duty (BCD) on gold to 15%, from 10.75%, to check the current account deficit and the rising import of the yellow metal.
The move is a reversal from last year’s tax cut to 10.75% in the Budget. Gold also attracts a 3% GST in India, which is the second-biggest importer of the precious metal in the world.
“There has been a sudden surge in imports of gold. In May, a total of 107 tonne of gold was imported and in June, too, the imports have been significant. The surge is putting pressure on the current account deficit,” the finance ministry said on Friday.
Gold rates surged nearly 3% to Rs 52,302 per 10 gram on MCX, though prices were lower in the global markets.
The price hike, however, is unlikely to reduce demand, bankers said. They expect the borrowers to be eligible for higher loan amount due to the increase in the prices.
Additionally, the demand for gold will continue as it is considered as a hedge against inflation, bankers said.
State Bank of India chairman Dinesh Khara said, “Invariably, we have seen that during inflationary conditions, gold is one of the preferred asset class and that means there is a traction for gold loans too.”
SBI expects its gold loan segment to do well in the first quarter of FY23, as the bank has witnessed a much better growth, he said. During FY22, SBI disbursed more than 2.4 million YONO agri gold loans amounting to `37,500 crore.
The demand for gold loans will remain unabated as the festive season is fast approaching, said Sanchay Kumar Sinha, country head of liabilities & branch banking at South Indian Bank. Besides, the increase in the prices of gold due to the import duty hike, borrowers would get a better per gram rate, which will boost the gold loan sales, he said.
Most non-banking financial companies (NBFCs) are currently giving a gold loan of Rs 3,500 per gram, according to an ICICI Securities report.
The demand for gold loans subsided in the post-pandemic period and the competition in the space has increased. Loans issued by the banks against gold have dipped in April and May, which were showing robust growth in the pandemic period.
NBFCs have increased monthly gold loan rates of smaller ticket size by around 30 basis points (bps) while monthly rates of those with a higher ticket size are increased by 20 bps, ICICI Securities said. There are some players, like Rupeek, which are offering gold loans at lower rate. The fintech, backed by private equity players, offers online gold loans at lower interest rates. However, such players will face some pressure due to rising interest rates, analysts said.