Before getting to trends in gold loan, know the basics of gold loan.
Gold has been a valued commodity, especially in India; it is considered auspicious and has a big jewelry and coins market. Even though gold is a highly liquid asset, it wasn’t until recently that the owners leveraged their gold effectively to cover the added costs and meet their liquidity needs. A gold loan is a self-explanatory term, and here the borrower gets the loan amount by giving the gold to the lending authority.
It is a fast and straightforward way to convert the yellow metal into instant cash. The CIBIL score* has no roll in applying for a loan against gold. Most of the time, a 750 or above score is needed in other loans except for gold loans. Thus anybody who is not eligible for any other loan can easily apply for a gold loan. When compared with the market for the rest of the world, India has a big gold market.
Want to know the upcoming trends in a gold loan?
Back in the decade, most of the lending market was under the unorganized sector through local moneylenders and pawnbrokers. However, the scenario has changed substantially. A noteworthy part of the market is covered and controlled by big lending organizations such as banks and Non-Banking Financial Companies (NBFCs) due to their fast turnaround time, a big network, and higher loan-to-value ratios up to 75 to 80 percent. In the latest notification, the Reserve Bank of India (RBI) has increased this rate to 90%.
Recently, these lending institutes (banks and non-banking financial companies) have started to focus more on what their customers want and thus providing gold loans on low-interest rates and affordable EMIs. Banks have improved gold loan product features and their services. Typically, Indian households have a sense of personal belonging and an emotional attachment to the gold owned by them, usually in the form of jewelry, coins, or even in bars. The latest trends in gold loan have proven to be an advantageous affair for the borrowers.
Thus, gold is rarely liquidated unless in extreme financial emergencies. Consequently, the monetary value of the gold investment is rarely realized. But particularly in rural areas, pledging jewelry and other gold assets to local pawnbrokers, landowners, and money lenders to avail loans has been prevalent in the Indian society for many decades altogether. Urban populace is also beginning to acknowledge the potential value that can be realized through gold loans. This has led to the breakneck growth of the gold loan market in India.
Many people have faced pay cuts and job losses during the recent Pandemic outbreak of the CoronaVirus (COVID-19). Due to this, the gold loan was one of the most applied loans and has recorded even rapid growth in the sector like never before. According to many NBFCs in India, existing customers have taken even more loans than before. They are handling over 2000 customers under a single branch through digital platforms. Digitization has played a vital role in the growth of loans like gold due to less paperwork and a fast verification process. It is easier to process without several visits to the branch of the lenders.
One of the benefits and trends in gold loan is that there is no NPA* and Gold Loan Interest Rate as low as 7.5%. The lenders can provide more than adequate support to their borrowers, which marks a better growth rate than other loans. It is estimated that by the financial year 2021, the gold loan growth will rise by 10% to 15%, and the banks and NBFCs are already prepared for future growth.
According to the financial time’s survey, the gold loan market is undoubtedly expected to reach 4617 billion INR by the financial year 20-22. In the year 2019, gold loan companies expanded aggressively where the market penetration was low. The introduction of online platforms and digital models in the gold loan sector has opened the gold market’s untapped areas. Further, it is expected by the top lending firms to invest more on the online grounds to capture the gold loan segment with more others.
*CIBIL Score: A numerical expression of borrower’s creditworthiness.
*NPA: Non-performing asset is a loan for which the principal or interest payment remained overdue.