Winning Bizness Desk

Mumbai. The gold loan market in India, facilitated by both banks and Non-Banking Financial Companies (NBFCs), is growing at an annual rate of 8.45%, with loans worth Rs 10 lakh crore expected to be distributed in the current financial year 2024-25. According to a report by credit rating agency ICRA, this figure could reach Rs 15 lakh crore in the next three years. AM Karthik, Co-Group Head of Financial Sector Ratings at ICRA, stated that the Reserve Bank of India's (RBI) stricter regulations on unsecured loans, like personal loans, have driven the rise in demand for gold loans. “With gold prices climbing and stricter regulations on unsecured loans, gold loans have gained significant traction in 2023-24, and this trend is expected to accelerate further in the next fiscal year,” Karthik said.

Dominance of Top Companies in the Market

The report highlights that the top four companies dominated 83% of the gold loan market in 2023-24. The organized gold loan market has grown by 25% annually between 2019-20 and 2023-24. Banks' gold loan portfolios increased by 26%, while NBFCs saw an 18% annual growth in the same period. Agricultural loans secured by jewelry and retail gold loans from banks grew by 26% and 32%, respectively.

Things to Consider Before Taking a Gold Loan

Interest Rates: Compare the interest rates offered by various lenders to find the most favorable deal.

Loan-to-Value Ratio (LTV): This refers to the percentage of the gold's market value that can be borrowed. Typically, you can get up to 90% of the value of the gold pledged.

Processing Fees: Ensure that you are aware of any processing fees involved in securing the loan.

Loan Repayment Terms: These vary from lender to lender, so it's important to choose a repayment schedule that suits your financial situation.

Security of Gold: Select a reputable lender with secure storage or insured vaults to ensure the safety of your pledged gold.

Loan Duration and Amount

The tenure for gold loans typically ranges from 3 months to 2 years, depending on the bank or NBFC. For example, HDFC Bank offers loan tenures between 3 months and 2 years, while State Bank of India (SBI) provides loans for up to 3 years. NBFCs like Muthoot and Manappuram offer longer loan periods. Borrowers can typically receive up to Rs 90,000 on gold valued at Rs 1 lakh, with SBI offering gold loans up to Rs 50 lakh. To apply for a gold loan, basic documentation like a PAN card, Aadhaar card, passport-sized photographs, and proof of address is required.

However, Failure to repay the loan on time can lead to the lender auctioning the pledged gold. Additionally, if the value of gold falls, the borrower may be asked to pledge more gold to maintain the loan balance. While gold loans are an effective way to secure short-term funding, they are not advisable for major expenditures like purchasing a home.