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The entire ecosystem behind burgeoning gold loans


The entire ecosystem behind burgeoning gold loans

Gold loans have assumed major importance in the current banking and financial services industry. Customers are steadily doing away with all major taboos linked to getting their gold assets pledged with the lenders. They are now looking to tap into the unused value of little-used gold assets. However, many people fall victim to unscrupulous and unorganized sector lenders who take gold deposits for loans at exceedingly high rates of interest. There are several people who face this hurdle when they urgently require liquidity and fail to get bank loans sanctioned.

As per several reports, unorganized entities make up a whopping 75% of the total market for gold loans in the country and these players usually try and exploit people urgently looking for money with sky-high interest rates and demanding terms and conditions. However, this sector is now witnessing swift changes in recent times. There are several gold loan offerings available at several private and public sector banks along with NBFCs like Bajaj Finserv, Manappuram and Muthoot Finance. They are helping in organizing this section of the market and are helping people tap into the value of their gold holdings. Experts feel that the middle-income segment in urban and rural zones alike, look for gold loans as the easiest funding options as compared to applying for personal loans. The NBFCs like Manappuram and Muthoot have made huge strides in creating a more organized gold jewellery and loans market quite a few years earlier.

Gold loans now come with lower rates of interest, minimal documentation, swift processing and adequate security for gold which is kept as collateral by the lender. There is steadily rising demand for gold loans in India as per experts. Banks like HDFC and ICICI Bank have special offers on gold loans and also ensure swift processing in order to compete with NBFCs. The processing fees usually range between 0.1-0.2% of the total loan amount while rates of interest vary between 12-14% on an average.

Many NBFCs charge interest rates between 18-26% while processing fees are usually between Rs. 200-500. Loans from NBFCs usually work out a little more expensive in comparison to banks as per reports. Most lenders only take gold ornaments as collateral for the loan while some also offer loans against holdings like ETFs, coins and jewellery including gold watches and mangalsutras. Some do not take anything lower than 18 carats gold. Gold loans are popular amongst most people since there is fast processing and minimal documentation. Several women and traders in India apply for gold loans as per several studies. South India still remains the top market for gold loans but North India is also witnessing an increase in gold loan applications.

Gold loans do not directly impact one’s credit score and no income proof is needed. Customers can usually get loans up to 80% of the current market value of their gold holdings. In case of organized market players, this ceiling has been limited to 75% by the Reserve Bank of India (RBI) although NBFCs usually have a ceiling which is lower. Loan tenors usually range between 3-9 months or even 12 months. Gold that is pledged can be auctioned once a regulatory procedure is followed and the applicant defaults on the loan.

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