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Gold loan i.e., loan sanctioned against gold (usually jewelry) by banks or Non-banking Finance Companies (NBFCs) has gained acceptance in recent years thus pushing its demand. This has infused interest among banks (like State Bank of India (SBI), Andhra Bank and HDFC Bank) and NBFCs (like Mannapuram General Finance and Muthoot Finance) to expand their business in this arena.
Ajay Mitra, managing director- India, Middle East & Turkey, World Gold Council said, “Acceptance of gold for loans by banks and financial institutions are an important development that will infuse greater confidence in gold as an asset class. With banks entering gold bar business, availability of infrastructure for storage, and with medallions being accepted for securitization purposes, the role of gold is surely bound to change from a commodity to a monetized asset that would encourage consumers to invest more in gold, a time-tested secure and now a monetized asset class”.
It is estimated that the total loans against gold stands at Rs.1,20,000 crore between the banks and NBFCs. SBI alone enjoys a loan portfolio of Rs 300 crore against gold. HDFC Bank plans to increase the number of branches offering gold loans from 150 to 600 in 2011. Andhra Bank also plans to facilitate gold loan disbursals from all of its branches in few months. Currently only 60 branches provide gold loans and each branch will have one valuer for pledged gold appraisal (whose fee is borne by customer).
They provide 70% to 85% of value of gold pledged as loan. The interest rates vary from 12% to 15.25% for banks whereas NBFCs offer between 12% and 21% depending on the value of the gold pledged. The time period varies from lender to lender, it can range from a couple of months to a year.