Growing Gold loans 

market in
India: Will it aid in Financial Inclusion?

Anand Dube
Bhumika Vagrecha
Swapnil Mehta
Financial Inclusion ???
Financial Inclusion is
Ensuring access to financial services

Timely and adequate credit

Vulnerable Groups

Affordable cost

*As defined by C Rangarajan Committee

Why it is needed?
India ranked 50th in first-ever Index of Financial
Inclusion

Out of the more than 600,000 rural habitations, only

about 32,000 have a commercial bank branch

Just over 40% of the population have bank accounts

Why it is needed?
Immense benefits for Government
Route the social welfare schemes directly

Reduce leakage

Reduction in time taken for the impact of benefit to be

visible

Substantial savings in transaction cost

How does Gold fit into this?
Just some numbers to ponder over

A 27% fall over period of 2 years due to recession

India accounts for 18% of global gold jewelry consumption

Consumer demand trends for individual countries for 2009 show that
India is still the top consumer, thanks to a 57 per cent consumption growth
Gold and domestic savings
Lack of access to bank

Strong cultural factors at work in India which makes

gold not only desirable but also a necessary asset to
hold

Traditional store of value

Serves important ceremonial purposes, gold serves as

preferred gift
Gold as preserver of value
The debt trap faced by poor
Borrowing by rural India as earnings not stable

Absence of banks drives them to moneylenders

High interest rates charged

Cycle of defaults and rollovers at even higher rates

Eventually title to property is transferred to moneylender

Features of Gold Loan
Secured Loans

Tenure

No end use restrictions

Loan amount

Interest rate

Repayment

Market risk
Advantages of Gold Loans
Avoids debt trap

Simple procedure, fast disbursal

No depreciation of underlying asset

No questions asked

Suited for unorganized sector

Gains for wider economy

Rise and Rise of Gold Loan Markets
Waning resistance among Indian middle and upper middle
class towards gold loans

Rise in price of yellow metal

Disappearance of social stigma attached to gold loans

Lower interest rate – purer the gold, lower the interest rate

Simple process

Loans dispersed for amounts ranging from `10, 000 to

`400,000 for NBFC and `25, 000 to `1, 000, 000
Process for obtaining Gold Loan
Approach bank/NBFC for loan against gold

Evaluation of purity of gold

Paperwork for mortgage

Disbursal of loan

On repayment of the loan, you get your gold back from
the lender.
Gold Loan market – Spectacular growth
CAGR of 38% over a period of last 7 years.

Expected to grow annually 35-40% over next 3 years

Gold Loan market has grown from `25 billion in FY-

2002 to `250 billion in FY-2009

Loans dispersed at an average interest of 13%, banks

charge PLR + 200-400bps
Gold Loan market – Spectacular growth
15% Y-0-Y increase in number of people taking gold
loans for Manappuram and 28% increase in dispersals
during the same period.

Muthoot has seen 75% growth in number of persons

availing gold loans and 81% increase in dispersals

Banks not left far behind

HDFC bank has clocked 60% growth

About Muthoot Finance
Started in 1887, founded by Mr. Ninan Mathai
Muthoot and Mr. M. George Muthoot in the town of
Kozhenchery, Kerala

Grown to become the largest gold company in India

ISO 9001:2000 organization

1700 offices across 23 states in India

Muthoot Finance – Quick Stats
Maximum per Gram Rates – `1,600/gram for standard 99.9% purity of gold

0% processing fee & no hidden charges 

Rates of Interest starting from 1 % per month.

8 different Schemes suiting all Categories.

Only Identity proof required.

Any Person – No Account required.

Interest only for actual number of days.

100% insured and Gold kept in strong rooms only.

Any time redemption facility without penalty.

Special reward points for M-Power Cardholders.

HDFC Bank – Leading Bank in Gold Loan Market
Avail Loan up to `10, 00,000 & up to 90% of value.

Safety & Security of your Gold Jewellery

Lending rate at 12.5%

ATL - Anytime Liquidity

No EMI, Service only Interest and enjoy the Loan facility
HDFC Bank – Leading Bank in Gold Loan Market
Description of Charges Gold Loan
Loan Processing Charges 1.50% or `750/-, whichever is higher
Valuation Fee Nil
No Due Certificate / No Objection Certificate
Nil
(NOC)
Duplicate no due certificate / NOC Not Applicable
Solvency Certificate Not Applicable
2% p.a. as penal interest over and above
Charges for late payment of loan amount
applicable rate of interest.
Charges for changing from fixed to floating rate
Not Applicable
of interest
Charges for changing from floating to fixed rate
Not Applicable
of interest
HDFC Bank – Leading Bank in Gold Loan Market
Description of Charges Gold Loan
Stamp Duty & other statutory charges As per applicable laws of the state.
Credit assessment charges Nil
Non standard repayment charges Not Applicable
Outstation clearing charges Not Applicable
Cheque swapping charges Not Applicable
Loan cancellation / re-booking charges Not Applicable
Bounce Cheque Charges Not Applicable
Statement Charges (per statement) Not Applicable
Duplicate Repayment Schedule charges Not Applicable
Legal, Repossession & Incidental charges As incurred by the Bank.
Renewal Processing Fees `500/-
Non standard repayment charges Not Applicable
Road Ahead
Potential vehicle for social transformation

65% of gold stock with rural household

75% of the gold loan market is still in unorganised sector

Government needs to encourage growth

Separate classification needed

Needs to separate it from unscrupulous money-lenders
Distinction between NBFC lending and loans against gold

Gold monetisation process will open up the sector and enable the circulation of
18,000 tonnes of gold (worth approximately `30,00,000 crore) back into the economy.
THANK YOU

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