In recent times, India has witnessed a significant surge in gold rates. As of April 19, 2024, the price of gold stood at ₹6,765 per gram for 22 karat and ₹7,380 per gram for 24 karat. This increase in gold prices has a direct impact on the borrowing habits of individuals, especially in a country like India where gold is not just a precious metal but also a cultural symbol of wealth and security.
The overall gold loan market in India is ~INR 18LCr, with an organized market size that reached USD 80.12 billion in 2023 and is expected to grow at a CAGR of 6.80% from 2023 to 2028. The market is driven by the cultural significance of gold in India, where it is not only a financial asset but also an integral part of various traditions and ceremonies. This cultural affinity has resulted in a vast reserve of gold in Indian households, estimated to be more than 27,000 tonnes, of which approximately 5,300 tonnes is pledged for loans.
“Gold loans offer a quick and convenient way for individuals to secure funds by pledging their gold jewellery or coins. With the current high gold rates, the loan-to-value (LTV) ratio becomes more favourable for borrowers. For instance, major banks and financial institutions in India are offering gold loans with a maximum LTV of up to 75%, as per the RBI standards. The higher the value of gold in the market, the more a borrower can get by keeping their gold as collateral, making gold loans an attractive option for immediate financial needs,” says Allan Fernandes, Head of Product, SahiBandhu Gold Loans, a leading gold loan aggregator platform in India.
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Gold loans typically offer more favourable interest rates than other types of loans. While these rates may differ depending on factors such as the chosen repayment scheme, the duration of the loan, and the principal amount, some platforms provide a gateway to explore and gather critical details about gold loans, encompassing the interest rates and loan periods offered by different banks, thus aiding in securing gold loan products with more competitive rates.
“Such platforms enable individuals to evaluate and ascertain which financial institution presents the most advantageous conversion of interest rates for particular loan conditions. For instance, selecting a gold loan with an extended repayment period or availing an overdraft option could result in reduced interest rates,” informs Fernandes.
The borrowing landscape in India is evolving, with a shift towards digital platforms and online transactions. A survey revealed that more than 25% of the borrowers avail of loans via online channels, and there is a significant rise in small-ticket credit demand. This digital shift aligns well with the gold loan process, which is also moving towards online platforms for application and disbursal.
“As gold rates continue to rise, gold loans could become the preferred borrowing option for many. The ease of access, coupled with the safety of pledging an asset like gold, makes it a viable choice for borrowers looking to meet their financial obligations without the burden of high interest rates or stringent credit checks,” says Fernandes.