Hindustan Times, in its March 26, 2013 article, reports that Abandoned gold loans are India's "jingle mail".
Extract :
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The myth that Indians' love for
gold is driven by tradition rather than financial self-interest has been
dashed. Falling prices have prompted borrowers who took out loans secured
against the yellow metal to break a cultural taboo and abandon their
collateral. It's the Indian equivalent of
American homeowners who walked
away from their underwater mortgages by mailing the keys to their homes to
the bank.
India's version of the
"jingle mail" came to light when Manappuram
Finance, a lender against gold, recently warned that defaulting borrowers
would force it to report a quarterly loss. The lender's Mumbai-listed shares
tanked 31% over just three days. The precipitous fall was partly due to
concerns the company had selectively leaked its guidance - a charge Manappuram denies.
Borrowing against gold is popular
among those who have trouble getting conventional loans. The formal gold loan
market has about $30 billion in assets; the pawnshop-dominated informal
market is probably several times as large. As recently as the fourth quarter
of 2011, companies were offering to lend $100 (Rs
5,416.3)against jewellery
valued at just $110 (Rs 5,957.9). With annual
interest rates at around 26%, it only made sense to repay the loan if the
value of the gold had risen to $126 (Rs 6,824.5).
But the local-currency price of the same gold has now fallen to about $105 (Rs 5687.1).
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