An overview of the Gold Loan Market in India and its growth

India is one of the largest consumers of gold globally. Its significance as an intrinsic part of Indian culture and during crisis is unquestionable. A Gold Loan is a type of secured loan wherein the borrower pledges gold as collateral to secure the loan. Read on to know more.

Utility of a Gold Loan

A Gold Loan is a secured loan where the borrower pledges their gold as collateral with the lender. The gold serves as security and is retained by the lender during the life of the loan. Gold Loans are typically short-term loans with a tenure of 6 months to 1 year. Gold Loans can be used for a variety of purposes:

• To finance investments in gold
• To finance business expansion
• To fund working capital needs
• To purchase raw material
• To meet unexpected expenses.

ICICI Bank offers Gold Loans at an interest rate starting from 10% p.a. through a user-friendly online Gold Loan application process.

Demand and Growth Factors

In India, the Gold Loan market is expanding gradually with an increasing credit demand from individuals and businesses. The growth of the loan market can be attributed to several factors such as easy availability of loans, attractive interest rates, flexible repayment options and minimal documentation.

The Reserve Bank of India (RBI) has also played a key role in promoting the growth of the Gold Loan market by introducing various initiatives such as the Gold Monetization Scheme (GMS) and the Gold Deposit Scheme (GDS). Under these schemes, banks accept gold deposits and issue loans against them. 

These schemes have made it easier for everyone to avail Gold Loans and helped banks mobilise idle gold lying with households. The Gold Loan Calculator is a handy tool to estimate the loan amount that can be availed against your gold.

The Expanding Gold Loan Market

According to estimates from businesses, 1,81,881 tons of gold have been mined throughout the human history as of 2011. Nearly 52% of the mined gold took the form of jewellery. According to a 2017 estimate by the World Gold Council, between 24,000 and 25,000 kilogram tons of gold remains with Indian households. This gold valued up to 40% of the nation's GDP in 2019, again according to estimates.

What's more intriguing is that as per projections, 65% of the nation's total gold reserves remains with rural India. This money is held captive as household gold in India can be repurposed. As per the most recent data on loans against gold jewellery, the total amount of credit increased dramatically from approximately Rs 34,000 crore at the end of March 2020 to almost Rs 61,000 crore in 2020–21, the first year of the pandemic. 

At the end of March 2022, it increased once more and this time by a fifth to about Rs 74,000 crore. This kind of expansion is witnessed when the market for Personal Loans charts a growth of 10 to 12% over the previous two years. The market for Gold Loans has expanded five times as quickly over these two years as all Personal Loans issued by the banks combined.

The Bottom Line

Gold Loans are becoming increasingly popular in India as people seek ways to collateralise their assets and access quick capital. The loan market has grown significantly in the recent years. This growth is driven by several factors including rising household income, increased access to credit and favourable government policies.

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