A family in need of an emergency fund to cover their medical expenses, a farmer requiring capital to purchase seeds for the season, a student hoping to pay for their education abroad, or an entrepreneur who thinks to expand his small business. What do they do to get that emergency fund? What do they all have in common? – Gold!
For decades and centuries, in India gold has been more than just a symbol of status, it has also been a lifeline! According to a 2023 survey by the World Gold Council, Indian households have accumulated up to 25,000 tonnes of gold, thereby retaining the tag of the world’s largest holders of the metal. Indians typically have a strong emotional attachment to gold and often accumulate significant quantities that can serve as a reliable financial resource during emergencies. In fact, during the COVID-19 pandemic, as many as 80% of customers, have taken multiple loans against their household gold, said executives of gold loan NBFCs in an ET report.
Since 2001, the metal has grown at a rate of about 15% per year and is currently sold at ₹7,025 per gram.
Year | Price (24 karat per 10 grams) |
1965 | ₹63.25 |
1975 | ₹540.00 |
1985 | ₹2,130.00 |
1995 | ₹4,680.00 |
2005 | ₹7,000.00 |
2015 | ₹26,343.50 |
2024 | ₹74,490.00 |
Organized Gold Loans are usually offered by banks, both in the public and private sectors as well as cooperatives, non-banking financial companies [NBFCs], and Nidhi companies. There also exists an unorganised gold loan market, comprising pawnbrokers and money lenders. The unorganized sector holds a 65% share, while organized players, including banks and NBFCs, represent the remaining 35% share.
In India alone, the overall gold loan market is ~INR 18LCr, with an organized market size that reached USD 80.12 billion in 2023 and is expected to grow at a CAGR of 6.80% from 2023 to 2028. As the demand for gold loans surges, so does the need for lenders to understand the intricacies of this unique financial product. From the emotional attachment to the meticulous process of assessing the value, the world of gold loans is rich and intricate.
The rate of interest against gold loans is historically lower starting from 7.35% than most unsecured loans like personal loans start from upwards of 10%. Interest rates on gold loans in India typically range from
Banks generally charge lower interest rates compared to NBFCs for gold loans some lenders also slap a 1-3% loan processing fee. The gold loan rate of interest varies with each lender and is typically based on the gold weight, loan amount, loan tenure, and the borrower’s credit history.
Since the gold itself stands as collateral, lenders don’t require extensive credit checks or proof of income. The documentation required is minimal, limited to basic identification and address proof.
Gold Loan eligibility criteria determine whether the borrower can secure a loan against his/her gold loan assets. Fulfilling the eligibility criteria and having all the required documents will streamline the loan application process and enhance the chances of securing the loan.
Eligibility Criteria | Requirement |
Age | 18 to 75 years |
Nationality | Indian Resident |
Gold Purity | 18 – 24 carat |
Occupation | Self–employed individuals, business owners, homemakers, senior citizens, and salaried individuals are all eligible for a Gold Loan. |
Any individual between the age of 18-75 having the following documents can avail of a Gold Loan. Here’s a list of what you will need:
1 | Proof of Identity | Aadhar Card, PAN Card, Passport, Voter ID, Driving License |
2 | Current Address Proof | Aadhar Card, Passport, Voter ID, Utility Bills, Ration Card, Driving License |
3 | Photographs | Recent passport-size photographs of the applicant |
4 | Gold Details | Invoice or receipt of the pledged gold item (if available) |
5 | Bank Details | Bank account details for loan disbursal and repayment |
6 | For Agriculture loans | Proof of land holding in case of an Agriculture Loan of more than Rs 1 lakh |
Gold loans offer a high loan-to-value (LTV) ratio, which means the borrower can get a substantial loan amount based on its current market value. LTV or the Loan to Value ratio is the ratio of the loan amount sanctioned for the value of gold deposited by the borrower as collateral. A higher LTV ratio would result in a higher interest rate, indicating a riskier investment for lenders.
LTV = Taking the loan amount / the market value of the borrower’s collateral
Maximum Limit
Presently, the maximum gold loan-to-value ratio (LTV) set by RBI is 75% of the gold’s market value. Borrowers can get a loan amount equivalent to 75% of their pledged gold’s worth. RBI sets a maximum LTV to prevent excessive lending which could lead to higher default risks.
Temporary Increase
During the COVID pandemic, the RBI temporarily increased the LTV to 90% to help individuals facing financial difficulties. However, this relaxation in LTV was available only till March 31, 2021.
Gold loans offer flexible repayment options for the borrowers, that let them repay the amount without affecting their finances.
Gold loans are one of the quick and easy loans to process. The loans are approved within a few hours of application and the loan amount is disbursed quickly.
In general, a gold loan can be approved in 90 to 120 minutes, depending on the customer’s ability to submit the necessary KYC documentation and bank rules.
Gold loans offer various tax benefits making them an attractive option for borrowers.
Typically lenders give numerous reminders via calls, messages, and emails to repay the loan along with some extra time after the due date. However, if the borrowers consistently default on payments then these actions might follow
The lender will charge an additional interest rate over the applicable interest rate for the months on which the payments have not been made. This penal interest is usually charged at the rate of 1% to 7%p.a., and it varies from lender to lender.
Gold is pledged as collateral against the loan, and hence failure to repay will give the right to auction the gold by the lenders. The gold will be considered a non-performing asset and sold off at a fair price to recover or offset the losses incurred from the loan. If the sale happens more than the to-be-paid amount, the remaining amount will be returned to the borrower.
If the amount received through the gold auction is insufficient to close the loan, the lender can also take legal action against the borrower. The legal actions may vary depending on the jurisdiction and the loan agreement terms.
Defaulting on gold loan payments can negatively impact the borrower’s credit score, which makes it difficult for them to avail loans in the future.
When the borrowers delay their EMI payment in the month it’s due, they can be charged an extra rate on interest on the overdue payment. This is called the Jumping interest rate and it can go above the base interest rate. For example, A borrower takes a loan for ₹10,000 on 1st August and his next repayment date is 1st September with a 1% interest. In case the borrower doesn’t pay, the interest for the following month will jump to 2%. After the borrower starts paying the amount properly, the interest rate will be taken back to 1%.
Despite the promising market, lenders face several challenges when it comes to gold loans:
Lenders usually rely on gold assessors to test the purity and the value of the collateral gold. When the assessors are unavailable, then dependency causes delays in loan processing. They assess the gold manually which is prone to human errors and inaccuracies. This affects the lenders and borrowers, due to inconsistencies, and increased processing times.
RBI has stringent norms and gold loan applications that are non-compliant lead to delays or rejections. However, with the traditional paperwork process, lenders face complexity in adhering to regulatory requirements.
Traditional loan processing methods result in operational inefficiencies with up to 25% higher operational costs compared to automated systems. Loan applications are delayed due to manual errors in the verification and validation process. Inefficiencies can lead to longer loan processing times, increased overheads, and reduced customer satisfaction.
Borrowers often pledge multiple pieces of jewelry for loans. Each and every jewel pledged by the borrowers needs to undergo individual appraisal and documentation. This adds even more complexity to the appraisal process it requires meticulous record-keeping to ensure each item is correctly valued and tracked.
Safeguarding all the pledged gold is no easy task. Lenders require secure lockers to store the gold. This involves the cost of the security, insurance, and maintenance of the gold items. Issues with locker availability, security, or management can jeopardize safety. Also, packing, unpacking, and returning the jewels to the borrowers upon repayment requires careful management to avoid loss, damage, or mix-ups. This process is labor-intensive and necessitates robust protocols.
India’s gold loan market is witnessing neck-to-neck competition as new entrants flood causing lenders to offer lower interest rates and better terms for borrowers. The rise of NBFCs and online gold loan platforms has intensified the competition. Now, lenders are trying to leverage technology for an improved customer experience and gain an edge in this market.
For decades, gold loans have been availed by people from all sections of society from the unorganized market through pawn brokers and lenders. These lenders, having local market knowledge, provide quick funds with almost no documentation and exorbitant interest rates. Although it is completely unregulated and involves many risks, it holds 65% of the gold loan market.
Sector | Bank | NBFCs | MoneyLenders/ Pawn Brokers |
LTV | Upto 75% | Upto 75% | Upto 80% |
Interest Rate | 8 – 26% pa | 9.5 to 28% pa | 15 -50% pa |
Disbursal | Up to Rs 20000: Cash >20000: Account Transfer | Must have an Account in the Same Bank, Where Money Will Also be Disbursed | Cash |
Regulatory Body | RBI | RBI | Unregulated |
Disbursal time | 2 days – 4 weeks | 1 day to 3 weeks | Same day or with in a few hours |
The shift from unorganized sources of finance to organized lenders for gold loans is gaining momentum. Increased awareness about the risks associated with informal borrowing has driven more people to seek reliable, regulated options. Organized lenders are capitalizing on this trend by integrating advanced lending software to streamline their processes. Borrowers benefit from improved efficiency, enhanced security, and greater transparency, making organized lenders a more attractive choice for gold loans.
Digital lending platforms are the operational engine for seamless business flow in the gold loan management industry. Used for loan maintenance, gold loan renewals, multi-valuation, rebate calculations, margin calls, maturity date reminders, and more, gold loan software provides a clean-cut, no-frills, and efficient solution to gold loan lenders Digital lending software reduces manual intervention through automated processes and streamlines the workflow.
Now loans against gold can be availed right from the borrower’s home through door-step onboarding. It’s all completely automated and digitized: a customer service rep visits the borrower’s house with a tablet (which has weighing equipment attached) on a pre-fixed date and time.
The gold is kept in a tamper-proof packet that is marked with a unique customer ID and is stored in a vault room at the lender’s premises. A vault number is allocated against the customer’s loan ID for easy tracking. During this entire process, the customer representative’s location is monitored. Some lenders also offer insurance coverage against gold loans, although the coverage amount is limited based on the lender’s discretion.
CloudBankin’s scalable loan origination system and loan management system handle the entire lifecycle of a gold loan, from loan origination to closure.
Ready to simplify and accelerate your gold loan processes? Experience the power of CloudBankin and unlock peak efficiency in your lending operations. Book a Demo today and see how CloudBankin can revolutionize your gold loan services!
LTV stands for Loan to Value ratio. It is a financial metric that compares the loan amount a borrower is seeking to the market value of the asset being used as collateral. The LTV ratio helps lenders assess the risk of a loan. A higher LTV indicates a higher loan amount relative to the value of the asset, which can result in higher interest rates due to increased risk. LTV = (Loan Amount / Market Value of Collateral)
Introduction Loan processing carried out in quick time provides competitive
Credit Reporting Format For Financial Institutions By The RBI Let's
It’s no doubt that Digital Lending Apps have taken the
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After smartphone penetration, people are not watching their SMS at all. They use SMS only for OTP related transactions. That’s it.
But What can a Lender see in your SMS after you consent to them?
Lender can see income, expenses, and any other Fixed Obligation like (EMIs/Credit Card).
1) Income – Parameters like Average Salary Credited, Stable Monthly inflows like Rent
2) Expenses – Average monthly debit card transactions, UPI Transactions, Monthly ATM Withdrawal Amount etc
3) Fixed Obligations – Loan payments have been made for the past few months, Credit card transactions.
It also tells the Lender the adverse incidents like
1) Missed Loan payments
2) Cheque bounces
3) Missed Bill Payments like EB, LPG gas bills.
4) POS transaction declines due to insufficient funds.
A massive chunk of data is available in our SMS (more than 700 data points), which helps Lender to make a credit decision.
An interesting insight on vehicle loans for lenders.
A trend we are seeing today – the first-hand vehicle ownership is decreasing with time. Why? People are upgrading their vehicles in every few years because of technological advances. And, this can be seen more with the millennial generation.
So, what should a lender do in terms of financing?
– Estimating the residual value of the vehicle at the start of the financing period.
– Charging a borrower only for the residual value (which is the difference between the value after a few years and the current value)
Example: A bike currently is INR 1 lakh. You want to buy the vehicle for 2 years. A lender will estimate the residual value of that bike today and what it would be after 2 years. If the estimated residual value = INR 45,000, the lender will charge you only that (say, INR 55,000 with interest for this instance) during your tenure.
At the end of 2-year period, you have 3 choices:
1. Return the bike and upgrade to a new one without going through the struggle of selling it.
2. Pay the lump sum remaining amount to own the vehicle outright.
3. Extend the financing and own it by keep paying the EMIs for the remaining amount of the vehicle for the next 12 or 18 months.
Benefits for the borrowers?
– Flexibility to use a vehicle and upgrade to a new one.
– Affordability to not pay for the complete value of the vehicle with the intention to use for a lesser amount of time.
– Convenience in owning the vehicle.
Say goodbye to the old lending option and embrace the new way of financing for vehicle by lenders!
How many of us know this?
1) Tiktok does Lending ( is it an entertainment company or social media company or a fintech company?
2) Youtube China does Lending
3) Top 100 internet companies in China(no matter what business they are in) do Lending
The team which was heading Lending in Tiktok was the Advertisement team. If we do Ads, we do X no of revenue. But if we do lending, we’ll get X+30% more revenue. This is on the same Ad spot.
Ad team has transformed into a lending team, and in today’s world, it’s possible because the subject matter expertise can be put in as an API and given to you.
Embedded Lending as a service is becoming popular in India too, and I am happy to be part of this ecosystem.
The answer is No. Only the top 10 crore people have access to many credit products in India. Almost all Banks focus on this market.
Once you go beyond that, the credit access rate has dropped significantly due to multiple factors.
1) Customers who are having low income(30-40K per month)
2) Not earning from an employer who belongs to Category A or B
3) Not from Tier 1 or 2 cities
NBFCs and Fintechs focus on the above segment, pushing another 10 crores of people.
But in India, 70 crores more people are formally or informally employed, which still needs to be tapped.