Households in Tamil Nadu store a high fraction of their wealth in the form of gold, and gold loans account for over 40% of their total debt, a Reserve Bank of India-appointed panel has found.
According to a report by the Household Finance Committee, in terms of wealth allocation towards various categories of assets, the State’s households have 59.4% in real estate, 28.3% in gold, 3.1% in financial assets (which include bank deposits, publicly traded shares and government securities and mutual funds) and 3.2% in retirement accounts (such as pensions and life insurance).
The panel that authored the report was comprised of members of the RBI, the Securities and Exchange Board of India, the The Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority, and was headed by Tarun Ramadorai of Imperial College London.
In terms of debt, Tamil Nadu households prefer gold loans, which account for 41.3% of their total debt, followed by non-institutional debt (including loans from family, friends, and money lenders), which accounts for 42.1%, and unsecured debt (loans not backed by collateral), which accounts for 37.9%. Mortgage loans (housing loans or loans availed using land) account for just 11.3%.
“In Tamil Nadu, households hold relatively large amounts of gold, followed closely by Andhra Pradesh. These high gold holdings in Southern States suggest that strong cultural factors may also be at play,” said the report. The high level of gold loans as a proportion of the total debt also suggests that gold plays multiple roles in household balance sheets.
The panel, which studied the household asset-debt allocation pattern across the country, noted that the reason why households prefer informal sources of funding is because they have a low “nuisance factor”. The average Indian household associates the formal banking system with administrative burden and complicated paperwork, the report explained.
