The ongoing second wave of Covid-19 in India is now affecting the finances of many households, as job losses and pay cuts have become more prevalent and lockdowns are taking a heavy toll on small businesses and those employed in this sector.
This is forcing many families to dip into their long-term savings to tide over the loss of income and medical emergencies. With India being a major consumer of gold, there has been a sharp rise in pledging of the yellow metal, says the Reserve Bank of India.
According to the central bank’s latest data, loans against gold have soared 82% since March 2020. The outstanding loans against the yellow metal went up from 333 billion rupees (US$ 4.57 billion) in March 2020 to 605 billion rupees ($8.30 billion) in March this year.
In India, nearly every household owns gold jewelry, and the increase in emergency spending has forced families to pledge these ornaments in banks to raise money. Moreover, gold loans are one of the easiest ways to access cash. People can approach banks and shadow bankers, get their jewelry assessed and valued and get a loan of up to 75% of the value of the holding based on the prevailing gold price.
Many people are even approaching pawnbrokers to pledge ornaments to raise money to meet the medical expenses of their Covid-affected family members.
On the other hand banks have tightened the norms for personal loans to reduce delinquencies. They are now asking for additional documents and collateral, and the rejection rate has also gone up for such loans.
Meanwhile, consumer durables loans are down 21.4%, as the coronavirus pandemic forces people to cut down on non-essentials. Loans outstanding for this category dropped 730 billion rupees in March 2021 from 930 billion rupees in March 2020.
With hospitals facing a shortage of oxygen cylinders and medicines, people are being forced to buy them from black marketeers. All this has drastically pushed up the medical expenses of many households. A Pew Research Center analysis had found that the middle class in India is estimated to have shrunk by 32 million in 2020 as a consequence of the Covid-19 downturn. The ongoing second wave is expected to worsen the situation.
Even those having medical insurance cover are finding it difficult to reimburse their hospitalization expenses as insurance companies have become more tight-fisted due to a spike in claims. Nearly half of such claims are rejected while those lucky enough to get their claims processed are receiving only 60% of the amount.
One of the main reasons behind these rejections is that insurers had failed to anticipate such a large influx of claims. Within the six weeks following April 1 this year, the number of pandemic-related claims filed was nearly half of what had been filed in the previous financial year. Insurers are worried about the impact it will have on their balance sheets.
Even in cases where a patient is eligible for cashless settlement, the insurance companies are not honoring it. Finance Minister Nirmala Sitharaman has reportedly taken it up with insurance watchdog Insurance Regulatory and Development Authority of India, Business Today reports.
Life insurance companies, too, have turned cautious and tightened norms for high-value policies. They have also put in place a host of new norms and medical tests for policy seekers with histories of Covid-19.
India’s Covid-19 caseload is now over 26 million and the death toll is nearing 300,000. May has been a difficult month for the country with the daily cases and deaths scaling new peaks. Although the month is not over yet, 7.7 million new cases have been reported in May, compared with 6.6 million in April and 1.02 million in March. This month’s death toll (over 90,000) has already doubled the April tally of 45,000.