“Gold Loans- The Old Concept in a New Package”
It has been observed recently that Indians own more gold than the citizens of any other country. They use the glittering metal as ornaments to flaunt family wealth, as a source of retirement savings and as insurance against calamities. Gold and domestic savings: In rural areas in India, due to the lack of access to banks the poor continue to invest their savings mainly in gold. Also, there are strong cultural factors at work in India which make gold not only a desirable but also a necessary asset to hold. But lately, gold has become something else: collateral, and the basis of one of the country’s fastest growing businesses, gold loans. It is therefore an apt moment to acquaint the reader with an insider’s perspective on why gold loans matter and why they hold so much promise for our country’s future. The purpose of this paper is to present a consolidated review of the various facets of the gold loans spreading with speed in India to the readers.
Gold loan is a secured loan issued by lenders against gold as the undersigned asset. Gold loan gives an opportunity for people to liquefy the value of their jewelry items and use it for financing purposes. Rise in gold prices have increased the disbursal of Gold Loans in the middle and upper middle class. With changing times working women are becoming financially independent and taking active part in decision making process. They are working in unison with their husbands to ensure a bright and secured future for their family. As the couples are well employed, they seek to return the principal even within a month of receiving their salary. They are now using such loans to finance their children’s education, (particularly for meeting donation demands), which a bank will not entertain, car purchases, holiday trips or even to put up margin money for a home buy. The loan process begins once the gold is deposited with the lenders. After a ‘purity’ check is done, lenders may offer loans for as high as 80% of the gold’s worth. While the gold market has only shown an ascent, lenders still consider the risk that gold carries and thus are reluctant to issue more than 80% of the value. Gold loans today are issued both by banks and non-banking companies.
Objectives of the Study:
The main objective of this study is to present a comprehensive picture of gold loans currently prevailing in India. Lending against gold being one of the oldest businesses of India is being served in an altogether different style which is organized and regulated. The business which was until lately dominated by unorganized money lenders has attracted all from organized Non-banking finance companies to banks in the public and private sector. The study aims at- * To examine the present scenario of gold loan industry in India whether organized or unorganized. * To discover the reasons; appearing as advantages; for the growing popularity of such a business. * To compare gold loans with the personal loans.
* To chalk out some precautions to be adhered to while availing gold loans.
Sources of data:
The data for the study has been collected from-
c) Articles of well known Newspapers
d) Published reports of IMACS
Gold Demand in India
India is one of the largest markets of gold accounting for nearly 10% of total world stock with 18,000 tonnes of gold [IMaCS Industry Report (2010 Update)] Value of gold stock in India has grown at 22% CAGR from FY02 to FY10 Despite increase in gold prices from Rs. 15,026 to Rs. 51,150 per ounce between 2002 and 2009, the demand for gold remained relatively stable at around 700 tonnes, which clearly demonstrates the price in-elasticity Rural India is estimated to hold ~65% of the gold stock which depicts the concentration. Southern India is the largest market accounting for 40% of India’s gold demand, followed by...
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