Interim Budget 2024: Gold Linked Credit Line Via UPI Can Monetise Idle Gold Jewellery, Says Muthoot Finance MD

New Delhi: Ahead of the presentation of the Interim Budget 2024, gold loan NBFC believes that granting 'priority sector status’  to gold loans and allowing a ‘Gold linked credit line via UPI’ can go a long way to help households/small business owners meet their financing needs and monetise idle gold jewellery.

Muthoot Finance MD Alexander Muthoot in his pre-budget expectations from the finance ministry said that gold linked credit line via UPI will be ideal for common man. 

"For this extending the UPI linkage (payment system) by NBFCs is the first requirement, and once this is allowed, gold loan NBFCs can extend a credit line to common man. Unlike a credit card, this product will work like a secured credit extended by NBFCs and also attract lower interest rate (of 12%-18%) as compared to a higher interest rate (of ~36%) on a credit card," Muthoot added.

He said that giving priority sector status to eligible gold loans will benefit the bottom of the pyramid and enhance financial inclusion. 

"Typically small borrowers need loans under Rs 50,000 (about 20 grams of gold collateral) for short durations like a year. Herein gold loan NBFCs can play an important role to fulfill the needs of small borrowers, self-employed, micro business owners, and help address their finance needs or working capital needs. Gold loans against jewellery also is a vital funding source for MSMEs. Gold loans provided by banks to farmers do get priority sector status, but not gold loans provided by NBFCs," he said. 

Extending priority status to all micro gold loans (under Rs. 50,000) by removing the current distinction between NBFCs and banks can enable gold loan NBFCs access to increased funding.