Loan Against Gold in India – Basic Information

Loan Against Gold is a very new concept in India. Just Last year, (2008) various Indian Banks such as SBI, HDFC & ICICI has started ‘Loan Against Gold’ Facility in India.

So What is “Loan Against Gold” & How it works?

Well, Loan Against Gold is not a new concept in India. Since Ancient time, this practice is going on in India. But up to now, there was no organizes players in this segment. Loan against gold jewellery has traditionally been the domain of the unorganized sector, with either the local moneylender or the jeweller himself stepping in to fund those customers (especially in rural and semi-urban markets). Banks are relatively new entrants in this segment, though there are several NBFCs that have been fairly active in this space for a long time.

Loan Against Gold means, You pledge your Gold in any form such as Physical (Jewellery, Bars & Coins), Gold ETFs & SBI Gold Certificates for a Loan. The Lender will give you a Loan of up to 80% Value of your Gold. Once you take the loan, you have to start paying interests every month. And at the end of the loan tenure, you have to pay all of the loan amount.

Why Loan Against Gold?

Well, Up to now, the Loan against Gold was the un tapped market. But Recently Banks have done some staggering research. According to their research and analysis, India consumes 800 tonnes Gold per Annum. And right now India holds total 15,000 tonnes Gold. The interesting part is that, 95% of this Gold is in Public hand. And the transaction value of this Gold is staggering Rs.15 Lakh Crores….

Can you believe this? Individual Indians hold Gold of Rs.15 Lakh Crores…….!!!!!!!!

Indians have an emotional attachment towards this traditional Asset Class. And India is the highest consumer of Gold in the world.

But the main limitation of Gold is its non-productive & non-utility aspect. Say for Example, if you own a Gold worth Rs.10 Lakhs than you can't use this capital for any other purpose. Because previously the loan against gold were not available. But now you can take a Loan against Gold & use this Capital for other useful purposes while owning your Gold at the same time.

Another advantage of giving a Loan against Gold is that, Indians have an emotional attachment towards this traditional Asset class. So the chances of being Default will be reduced very much.

Which Banks offer Loan Against Gold Facility?

Currently SBI, HDFC & ICICI Banks are offering Loan against Gold facility

Advantages of Loan Against Gold in India -

- Easily available. As Gold is the hard core Asset, you will get an instant loan against it.

- Minimal Paper work is required

- No Income proof is necessary

- Very Low Income Individuals can also take loan against gold otherwise they are not qualified for the traditional loans.

- Customers in rural/ lower socio-economic strata of the society can take this Loan

- Customers with low/under stated income

- Instant Loan

- You can take Loan against any form of Gold such as Physical Gold, Gold ETFs (Demat Gold) & SBI Gold Certificates

- This facility available all over India

- You have to just pay the interest for this loan & you can pay all the loan amount at the end of the loan tenure. In a typical loan against gold transaction, only regular payment of interest during the tenure of the loan is required with the principal amount being repaid at the end of the tenure. This allows customers to manage their cash flows better on a monthly basis, and use one-time or lump-sum payments to repay the principal amount. Further, no other loan type offers funding faster than loan against gold.

Disadvantages of Loan Against Gold in India -

- Even though, it is easily available, it is not good for those people who have low to zero level of Financial IQ because if you default, you will lose the control over this precious Asset.

- If you take the Loan against Gold for personal expenses such as buying car than it is quiet possible that you may default in the loan.

- In short, Loan against Gold is not for people with low Financial IQ because there is a higher risk of default and losing control over this Asset for these people. So if your are not Financially Intelligent than don’t take loan against your gold but instead simply sell your gold and raise the money, it will be cheaper.

So this is all about Loan against Gold in India. India has a great market potential in this highly un organized sector………… Because India is world’s highest Gold Consumer…….!!!!!!!!