Growing Gold loans market in India: Will it aid in Financial Inclusion?

Anand DubeBhumika 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 savingsLack 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 poorBorrowing 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 LoanSecured Loans

Tenure

No end use restrictions

Loan amount

Interest rate

Repayment

Market risk

Advantages of Gold LoansAvoids 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 MarketsWaning 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 LoanApproach 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 growthCAGR 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 growth15% 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 FinanceStarted 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 (NOC) Nil

Duplicate no due certificate / NOC Not Applicable

Solvency Certificate Not Applicable

Charges for late payment of loan amount 2% p.a. as penal interest over and above applicable rate of interest.

Charges for changing from fixed to floating rate of interest Not Applicable

Charges for changing from floating to fixed rate of interest Not Applicable

HDFC Bank – Leading Bank in Gold Loan MarketDescription 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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