Locked away deep in the vaults and lockers of India lies a treasure trove worth Rs 30 lakh crore,enough to wipe out the countrys fiscal deficit many times over. Gold,Indias investment of choice is trading at over Rs 18,000 per 10 grams,opening a window of opportunity for its owners to channel the value of this idle asset into productive means. Enter gold loan finance. Indians have traditionally been suspicious of borrowing against gold,but that mindset is changing as organised players enter the business and customers find a way to unlock the value of their gold holdings. According to World Gold Council,India has the worlds largest stock of around 18,000 tonne of privately held gold,equal to 10% of global stock. According to experts,when people borrow against gold,it can start a chain of productive economic activity,boosting demand and consumption. In India,about 75% of gold loan finance is in the unorganised sector,where the chances of the financier shutting shop or not returning gold are high. However,the entry of banks like State Bank of India,Andhra Bank,HDFC Bank,ICICI Bank,Bank of India and several non-banking finance companies (NBFCs) like Muthoot Finance and Manappuram Finance has infused confidence among consumers,who now view gold as an asset that can be monetised and not just a precious commodity. VC Circle,an independent agency tracking investments,estimates Indias organised gold finance at around Rs 270 billion,of which 90% happens in south India. Says VP Nandakumar,chairman,Manappuram Finance,a listed gold loan company: Demand for gold loans will continue to be very strong and will grow at a CAGR of over 40-50% in the next 10 years. Banks find it safe to lend against gold,while customers get loans faster,with less documentation and at a lower rate of interest. You can borrow between 60% and 80% of the value of gold. Proofs of address and identity are mandatory. Banks charge Rs 100-250 for an evaluation. You must provide a stamp paper to the bank for the mortgage and stamp charges depend on the loan amount. However,NBFCs do not charge such fees. The customer has to prove ownership of gold. Some banks may even ask for a no-objection certificate from the lady of the house. You get the loan in cash or bank transfer from Rs 1,500 to Rs 1 crore. Loan tenure is not uniform,but the typical duration is one year and you can foreclose the loan any time. Banks have loan tenures from 3 to 12 months and one can prepay or part-pay without any charges. Interest rates range from 12% to 15% (cheaper than personal loan interest rates of 18-22%) and one can pay interest every month or every quarter. Ensure no payments are missed,or you could face default penalties which can drive up the repayment amount. Once the loan is repaid,you get your gold back,in exactly the same state and weight that you gave at the time you took a loan. However,Avinav Chaubey,chief marketing manager,Muthoot Group has a word of caution: It is important for a customer to see if company gives time to the customer to repay the loan amount even after expiry of his loan tenure or it simply auctions the gold pledged. A customer should keep in mind the credibility of the establishment,whether they are reputed and trustworthy and with the resources to secure the pledged gold against theft and other risks. One must also see whether they have a professional set-up with transparent dealings and well-defined systems and procedures, emphasises Nandakumar. Gold loans are secured loans and one can use the loan amount towards any productive purpose. Most lenders come under RBIs strict regulatory supervision. Some banks place restrictions on using the money for speculative purposes and stock trading. For someone who does not have a good credit history,gold loans can be a quick way to get a loan against the security of gold. But now,some banks are planning to check applicants credit history from Credit Information Bureau India (Cibil) before approving a gold loan.
