There has been a sudden spike in the demand for gold loans in the country, especially in cities like Hyderabad, Bengaluru, Chennai, Pune, Delhi, Rajkot and Surat. In the year 2009, the gold finance industry’s turnover was Rs 200 crores and now it has reached Rs 20,000 crore. More so the demand has increased in past 6-8 months due to the ongoing pandemic, people who are facing cashflow problems are looking to leverage their gold to meet these issues. The other reason which has resulted in a sudden spike is the increase in the price of gold. The price of the gold was historic high in the pandemic times, the price reached Rs 53,250 per 10 gram in the month of July. Interestingly, 40% of the gold loan market is dominated by the non-banking financial company like Muthoot Finance, Manappuram Finance and Muthoot Fincorp. As per the report from Motilal Oswal, gold financiers have created such a boom because of easy accessibility, flexible tenure and faster turnaround time. However, gold financier charges a higher rate of interest but the other benefits overpower over the interest rate charges. To make things easy for people during the pandemic time, RBI also increased the loan-to-value (LTV) for gold loans given by banks from 70-80% to 90%.
The flexibility of gold loan
Gold loan is flexible in nature, a borrower can pick a tenure according to their need, whenever they feel comfortable that they can repay the loan. Gold loan is considered as a short term loan because the tenure starts from a few weeks to 5 years. The repayment schemes which is offered by banks in the gold loan is different from the other types of loan. Generally, gold loan offers three types of loan repayment option like, a borrower can pay the regular EMIs, a borrower can only pay the interest during loan tenure and pay the principal amount at the end of the tenure and pay interest and principal amount at the end of the tenure.
Gold is safe
When a borrower opts for gold loan, he/she has to keep their gold ornament as collateral, however, they don’t need to worry about their ornament as it is kept safe in bank lockers or the lockers of NBFCs. A borrower does not need to pay any charges for keeping their jewellery in the lockers. Most of the banks also offer insurance coverage up to a certain amount on the gold loan schemes.
No paperwork is required
When a borrower is in need of money urgently, there might be a possibility that he/she cannot arrange the papers on time, like bank statements, ITR documents may take up to 1-2 days as they are procured from the banks. However, when applying for gold loans a borrower only needs to submit their identity proof, address proof and KYC documents, no bank asks for income proofs.
The disbursal time in the gold loan is quicker when compared to other types of loans. The loan is the procedure of gold loan is hassle-free, lenders do not check credit score and require minimal documents which makes the procedure faster. The loan amount is disbursed in the account of a borrower within a few hours.
Bottom line: During a pandemic, the gold loan market saw a growth of 15-18% in the fiscal, growth was flat at the beginning of the year but to meet the financial requirement more and more people had to leverage their gold ornaments. A gold loan can be taken for any purpose like meet the wedding expenses, medical emergency, education and many more reasons. Due to coronavirus many people faced loss in their business, many lost their jobs, others were getting salary cuts and people also had a medical emergency because of this reason many people took the gold loans because the borrower does not need to have a good credit score, do not need any major paperwork and the amount is disbursed within no time.