Fifty-two year old Gautam Bose, a pawn broker in the Munshi Bazar market in Beliaghata in eastern Kolkata, is unperturbed by the current volatility in gold prices.
Bose, whose family has been in this business for almost three generations now, says this has been a part of their trade and they have learnt to deal with it.
“Yeh Kismat Ka Mamla Hai” is how M. Gyanchand Lodha, a pawn-broker in Hyderabad, reacts in despair when asked on the impact of recent fall in gold price on his business. “I don’t recall a serious scenario of this magnitude in the recent past. Our interest profits will be much less, though there could be more serious problems going forward,” Lodha said.
Huge volatility
Pawn brokers have never come across such volatile movement in gold before. From around Rs 33,000 for 10 gm in November last, gold prices had dropped to Rs 30,000 by March first week. And two weeks ago, prices plunged to Rs 25,000 before recovering to a little over Rs 27,000 now.
The volatile movements have left the owner of a pawn shop tucked away in the bylanes of Palace Guttahali, part of old Bangalore worried. “We expect slowdown in business with the volatility,” says the owner of Sona Jewellery.
With the steady appreciation in gold price in the last decade, some pawn brokers had been extending 80-85 per cent loans to gold’s value, depending on the customer credentials at 18-24 per cent interest.
But people such as Kolkata’s Bose say they are up to the task. “We lend only up to 50 per cent of the value of gold unlike some of the companies which lends more than 75-80 per cent. So even if there is a drop in gold prices we are not affected,” he says.
“By and large, we are safe,” says Anand Sharma, a pawnbroker in Chennai. He says that they do not give more than Rs 1,500 a g.
However, those who lent more than Rs 2,300-2,400 a gram when the metal was ruling at over Rs 3,000 a g, may have to take a small cut in their margins, “that too only notionally,” he said.
Demand unaffected
Knowledge of the local market and personal rapport with the customers help prevent defaults by customers. “We know the families of customers to whom we extend loan against gold. Hence we have not seen many instances of defaults happening,” Sharma said.
The rise or fall in gold prices does not impact the demand for such loans, said another pawn broker in Hyderabad.
“People do not pledge their gold to get money. It is done most often on some purpose, either for agriculture or for marriage or health reasons. Price of gold, whether it is high or low, makes little sense to such customers, who are looking to get money from some avenue or other to meet their needs,” Bose says.
According to Hyderabad’s Rajkumar, whose family is in the business in the well-known pot market here for over two generations, problems crop up when customers do not turn up to get their gold released from the mortgage.
“If prices continue to drop further, many customers might not release their gold,” he said.
The Sona Jewellery owner in Bangalore says that the pawn business itself isn't doing well because people have reduced spending on marriages and other social functions.
Ramlok Chand, another pawnbroker in the Chennai says, it is business as usual for him. People continue to come and pledge. “In fact, some even pledge to buy new jewellery,” he said. According to rules, a pawn-broker cannot dispose of the gold kept under mortgage for a period of two years after one stops paying interest.
The demand for loans is slightly humbled. Those who wish to avoid Know Your Customers norms of banks and gold loan companies and people in urgent need to company are still there.
“However, people who keep gold in large quantities to invest somewhere or meeting business expenses have almost vanished,” says Nemi Jain who runs a major jewellery showroom besides pawn-broking at Begum Bazar in Hyderabad.
Interestingly, not many sympathise with pawn-brokers. “They always charge higher interests and never give a single day concession. I really don’t think they can ever lose anything come what may,” Padma, a teacher says as she steps out of a pawn-broker’s shop!
Pawn brokers expect business to fall at least 20 per cent. “But it will take at least a month to know the full impact,” says Bose of Kolkata.
(Naga Sridhar, Hyderabad; Shobha Roy, Kolkata; K. Giriprakash, Bangalore; and R. Ravikumar, Chennai contributed to this report.)