Loan Against Gold: A rising trend in India


Gold always had a special significance in all ages. Since the ancient age Gold was a chief metal to barter now in this age we take Loan against Gold. As per the survey of 2013, India stands in 2nd position in the Gold jewelry consumption which is almost 974 tons. As days are never equal, in the need of hour where urgent requirement of cash arises people barter this gold jewelry over the counter to get cash. Gold has long been a valued commodity, particularly in India where it is considered auspicious, and has been in use for centuries in the form of jewelry, coins and other assets. Though gold is a highly liquid asset, it wasn’t until recently that consumers leveraged it effectively to meet their liquidity needs. Lenders provide loans by securing gold assets as collateral. Compared with the rest of the world, in India the gold loan market is big business.

Until a decade back, most of the lending was in the unorganized sector through pawnbrokers and money lenders. However, this scenario changed with the entrance of organized sector players such as banks and non-banking finance companies (NBFCs) which now command more than 25% of the market. Gold loans are among the newest class of assets which have seen rapid growth in securitization. The government views gold loans as an effective means of meeting the demand for micro-finance in India. This would encourage framing of policies favorable to the growth of the gold loan market. The government views gold loans as an effective means of meeting the demand for micro-finance in India. This would encourage framing of policies favorable to the growth of the gold loan market. Gold loans have become a basis for creation of new financial products such as loans for purchase of gold wherein gold is purchased on the date of the loan and held as a pledge until the equated monthly installments are paid.

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Gold saving schemes are also emerging wherein the customers pay regular cash flows which on maturity are added with a certain amount of interest payment to purchase gold for customers. With frequent hikes in interest rates by the RBI and the subsequent hike in rates by banks, the cost of personal loan borrowing is increasing. This will lead to an increased consumer willingness to secure gold loans. Since more than 75% of the gold loan market is still with the unorganized segment as of 2010, the organized segment has a huge potential for growth through cannibalization of the unorganized segment. A bigger, better and more efficient network of branches would help the organized segment target this growth area. The gold loan market in India is still under-penetrated considering the abundant availability of gold as collateral with Indian private households and the existing size of the gold loan market (approximately 1.2% of the total gold stock). This presents a significant scope for growth of the gold loan market. Gold loan has become one of India’s fastest growing businesses.

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