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Gold loans have witnessed a rise, thanks to the rising demand for the yellow metal. To increase their customer base, both banks and non-banking financial companies are expending their network in all categories of cities.

In FY20, the gold loan market in the country stood at around Rs 3.44 lakh crore.

Industry insiders estimate this sector will witness at least 16% growth in FY22 and reach a market size of about 4.70 lakh crore.

In August last year, the Reserve Bank of India had increased the maximum loan to value (LTV) ratio for gold loans from 75% to 90% to help borrowers secure a higher loan amount on gold pledged. The move was seen designed to support the common people’s financing requirements during the Covid-19 crisis.

A recent study by Motilal Oswal says that in FY20 at least 42% of the gold loan market is dominated by NBFC’s such as IIFL, Bajaj Finserv, Muthoot or Mannapuram group. 34% of india’s gold loan market is with different PSU and private banks.

But a look at the rate of interest of various institutions show that if you take loan from any PSU bank, you would end up paying EMI to the tune of Rs 800 to Rs 1,000 less than loans from NBFCs calculated on a loan of Rs 5 lakh for a three-year tenure.

The average interest rate of NBFCs is more than that of banks. But the NBFC’s vast network in rural India and lucrative commission-based system help them to grab a bigger share of the market.

A study by Cognizant shows that in FY08, the NBFC market share of gold loans was a little over 18%. In FY10 the market share of NBFC’s grew to 32.20% and in FY15 the share further rose to 34%.

The share of the banks, which was 53% in FY08 dipped to 34% in FY20.

The gold loan interest rate in banks varies between 7.5% to 10.5%, while the loans in NBFC charge interests between 11% to 12%.

As in end-March, the interest rate was 7.35% in Bank of India, 7.50% in SBI, 7.65% in Canara Bank, 8.50% in UCO Bank, 8.75% in PNB, 8.85% in Union Bank, 9% in BoB, 9.25% in IOB.

The rates for the private banks are a bit higher with HDFC Bank, ICICI Bank and Axis Bank giving it at 9.5%, 11% and 12.5%, respectively.

The interest rates of NBFCs are higher. IIFL is charging 9.25%, Bajaj Finserv 11% and Muthoot 11.90%. Manapurram is charging an interest of 12%.

“In my area that extends to a radius of 3 km we have to meet targets of 10-12 loans per day. So we aggressively market in the rural and semi urban areas,” said a branch manager of a leading NBFC in north Kolkata.

For the public sector banks, gold loan is not a focus area, said a manager of a PSU bank. Their focus is the retail loan segment.