High gold loan demand outpaces credit card debt growth

• Follow

New Delhi: The demand for gold loans has been growing at a rapid pace, outpacing the growth of credit card debt. The organized market for gold loans stands at approximately ₹6 lakh crore annually. Banks (80%) and non-banking financial companies (NBFCs) largely dominate the market. Local financiers facilitate 65% of these loans. Showcasing their substantial role in the sector.

According to a recent report by the Reserve Bank of India (RBI), as of May 2024, the outstanding amount for gold loans surged by 29.7% to ₹1.2 lakh crore annually. In comparison, non-food credit grew by 26.2% to ₹2.67 lakh crore during the same period. Banks saw their non-food credit rise by 16.2%, amounting to ₹162.30 lakh crore. This highlights that gold loans are growing nearly twice as fast as overall bank credit.

The central bank closely monitors the growth trajectory of the gold loan market, expected to continue amid rising gold prices. Authorities are actively enhancing transparency in this sector, taking significant steps to regulate it more effectively.

Reason for surge

The reason behind the surge in demand for gold loans lies in their straightforward process. Many NBFCs now offer doorstep services for gold loans, making the borrowing process akin to personal loans, with minimal paperwork. These companies are leveraging new technologies to assess gold purity and value within minutes, ensuring quick disbursement of loans. Consequently, gold loans are increasingly becoming a preferred option for meeting immediate financial needs.

If you possess gold, a gold loan presents a viable option for fulfilling financial requirements. However, borrowers must be mindful of certain aspects before availing such loans, as there are several nuances involved. Prior valuation of your gold by multiple entities is advisable, as different lenders may offer varying loan amounts based on assessed value. Many jewelers now provide free valuation services, offering receipts for transparency.

Moreover, borrowers need to consider the processing fees and interest rates associated with gold loans. There exists a significant disparity between the fees charged by banks and NBFCs. Government banks typically charge interest rates ranging from 8.65% to 11%, whereas private banks and NBFCs may charge up to 17% and 36% interest, respectively.

Similarly, processing fees can also vary substantially. For instance, SBI and Canara Bank charge up to 0.5% or a maximum of ₹5000 as processing fees, whereas NBFCs may charge more than 1% of the loan amount.

Therefore, conducting thorough research beforehand can lead to substantial savings in terms of processing fees and interest rates. This ensures that gold loans serve as a prudent financial tool, effectively meeting immediate liquidity needs while managing costs efficiently.