project on muthoot finance.docx

8/10/2019 PROJECT ON MUTHOOT FINANCE.docx

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PROJECT ON NBFC DET ILS ON

LO N G INST GOLD ND

MUTHOOT FIN NCE

Submitted to: Submitted By:

Business School of Delhi chayan anand

28/1 Knowledge Park III Roll no 100241036

Greater Noida-201306

Acknowledgement


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One of the most pleasant aspects of writing an acknowledgement is the opportunity to thank allthose who have contributed to it. Unfortunately, the list of expression of gratitude- no matter howextensive is always incomplete and inadequate. This acknowledgement is no exception.

First and foremost Id like to thanks my advisor, Professor Mr. Vijay Anand Dubey, Mr. PuneetKumar, Mr. Prof Rajesh. Mr. Yogendra., Mr. Athar Ali. for all the stimulating advices andconsistently strong support. It has been great pleasure of mine to work with and learn from theseextraordinary individuals. I wish to express my sincere gratitude to my industry guide Mrs RupalthackkarDirector, muthoot finance gandhidham.

I owe my deepest thanks to my family- my mother and father who have always stood by

me and guided me through my career, and have pulled me through against impossible odds at

times.

It is impossible to remember all, and I apologize to those I have inadvertently left out. Lastly,

thank you all and thank God!

RegardsShatrughan kumar Singh.

Declaration


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I am SHATRUGHAN KUMAR SINGH hereby state that this final evaluation report has been

submitted to Sunshine Education in partial fulfillment of the requirements of final project in PGDM

program of 2009-11.

The empirical information of this report is based on my experience in company. Any part of

this project has not been reported or copied from any report and others.

SHATRUGHAN KUMAR SINGH

Table of content

1. Introduction

2. Historical background of NBFC

3.

Factors contributing to the growth of NBFC

4. Classification of NBFC


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5.

Role of NBFC

6.

Function of NBFC

MUTHOOT FINANCE

1.

Introduction

2.

Overview

3.

Board of Directors

4.

How does Gold loan benefit

5.

The debt trap faced by Middle-Class & Poors

6. Advantage of Gold Loan

7.

Rise of gold loan market

8. Process of obtaining gold loan

9. Gold loan market: Spectacular growth

10.Muthoot Finance- Quick stats

11.What is the process to be followed to obtain a Gold Loan

12.Gold loan become better option than Personal Loan

13.Are Gold Loan safe?

14. os and onts.

INTRODUCTION:

We studied about banks, apart from banks the Indian Financial System has a large

number of privately owned, decentralised and small sized financial institutions known

as Non-banking financial companies. In recent times, the non-financial companies

(NBFCs) have contributed to the Indian economic growth by providing deposit facilities

and specialized credit to certain segments of the society such as unorganized sector

and small borrowers. In the Indian Financial System, the NBFCs play a very important

role in converting services and provide credit to the unorganized sector and small

borrowers.


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NBFCs provide financial services like hire-purchase, leasing, loans, investments, chit-

fund companies etc. NBFCs can be classified into deposit accepting companies and non-

deposit accepting companies. NBFCs are small in size and are owned privately. The

NBFCs have grown rapidly since 1990. They offer attractive rate of return. They are

fund based as well as service oriented companies. Their main companies are banks and

financial institutions. According to RBI Act 1934, it is compulsory to register the NBFCs

with the Reserve Bank of India.

The NBFCs in advanced countries have grown significantly and are now coming up in a

very large way in developing countries like Brazil, India, and Malaysia etc. The non-

banking companies when compared with commercial and co-operative banks are a

heterogeneous (varied) group of finance companies. NBFCs are heterogeneous group of

finance companies means all NBFCs provide different types of financial services.

Non-Banking Financial Companies constitute an important segment of the financial

system. NBFCs are the intermediaries engaged in the business of accepting deposits and

delivering credit. They play very crucial role in channelizing the scare financial

resources to capital formation.

NBFCs supplement the role of the banking sector in meeting the increasing financial

need of the corporate sector, delivering credit to the unorganized sector and to small

local borrowers. NBFCs have more flexible structure than banks. As compared to banks,

they can take quick decisions, assume greater risks and tailor-make their services and

charge according to the needs of the clients. Their flexible structure helps in

broadening the market by providing the saver and investor a bundle of services on a

competitive basis.

Non Banking Finance Companies (NBFCs) are a constituent of the institutional

structure of the organized financial system in India. The Financial System of any

country consists of financial Markets, financial intermediation and financial instruments


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or financial products. All these Items facilitate transfer of funds and are not always

mutually exclusive. Inter-relationships Between these are parts of the system e.g.

Financial Institutions operate in financial markets and are, therefore, a part of such

markets.

NBFCs at present providing financial services partly fee based and partly fund based.

Their fee based services include portfolio management, issue management, loan

syndication, merger and acquisition, credit rating etc. their asset based activities include

venture capital financing, housing finance, equipment leasing, hire purchase financing

factoring etc. In short they are now providing variety of services. NBFCs differ widely in

their ownership: Some are subsidiaries of large Manufacturers (e.g., T.V. Motors T.V.

Finances and Services Ltd). Many others are owned by banks such as ICICI Banks, ICICI

Securities Ltd, SBI Capital Market Ltd, Muthq oot Bankers Muthoot Financial Services

Ltd a key player in Kerala financial services. Other financial institutions are IFCIs IFCI

Financial Services Ltd or IFCI Custodial Services Ltd .

Non-banking Financial Institutions carry out financing activities but their resources are

not directly obtained from the savers as debt. Instead, these Institutions mobilize the

public savings for rendering other financial services including investment. All such

Institutions are financial intermediaries and when they lend, they are known as Non-

Banking Financial Intermediaries (NBFIs) or Investment Institutions.

The term Finance is often understood as being equivalent to money. However, final

exactly is not money; it is the source of providing funds for a particular activity. Theword system, in the term financial system, implies a set of complex and closely

connected or inter-linked Institutions, agents, practices, markets, transactions, claims,

and liabilities in the Economy. The financial system is concerned about money, credit

and finance. The three terms are intimately related yet are somewhat different from

each other:


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Money refers to the current medium of exchange or means of payment.

Credit or loans is a sum of money to be returned, normally with interest; it

refers to a debt

Finance is monetary resources comprising debt and ownership funds of the state,company or person.

HISTORICAL BACKGROUND.

The Reserve Bank of India Act, 1934 was amended on 1st December, 1964 by the

Reserve Bank Amendment Act, 1963 to include provisions relating to non-bankinginstitutions receiving deposits and financial institutions. It was observed that the existing

legislative and regulatory framework required further refinement and improvement

because of the rising number of defaulting NBFCs and the need for an efficient and

quick system for Redressal of grievances of individual depositors. Given the need for

continued existence and growth of NBFCs, the need to develop a framework of

prudential legislations and a supervisory system was felt especiallyto encourage the growth of healthy NBFCs and weed out the inefficient ones. With a

view to review the existing framework and address these shortcomings, various

committees were formed and reports were submitted by them. Some of the committees

and its recommendations are given hereunder:

1. James Raj Committee (1974)

The James Raj Committee was constituted by the Reserve Bank of India in 1974. After

studying the various money circulation schemes which were floated in the country

during that time and taking into consideration the impact of such schemes on the

economy, the Committee after extensive research and analysis had suggested for a ban

on Prize chit and other schemes which were causing a great loss to the economy. Based

on these suggestions, the Prize Chits and Money Circulation Schemes (Banning) Act,


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1978 was enacted

2. Dr.A.C.Shah Committee (1992):

The Working Group on Financial Companies constituted in April 1992 i.e. the Shah

Committee set out the agenda for reforms in the NBFC sector. This committee made

wide ranging recommendations covering, inter-alia entry point norms, compulsory

registration of large sized NBFCs, prescription of prudential norms for NBFCs on the

lines of banks, stipulation of credit rating for acceptance of public deposits and more

statutory powers to Reserve Bank for better regulation of NBFCs.

3.Khan Committee (1995)

This Group was set up with the objective of designing a comprehensive and effective

supervisory framework for the non-banking companies segment of the financial system.

The important recommendations of this committee are as follows:

i. Introduction of a supervisory rating system for the registered NBFCs. The ratings

assigned to NBFCs would primarily be the tool for triggering on-site inspections

at various intervals.

ii. Supervisory attention and focus of the Reserve Bank to be directed in a

comprehensive manner only to those NBFCs having net owned funds of Rs.100

laths and above.

iii. Supervision over unregistered NBFCs to be exercised through the off-site

surveillance mechanism and their on-site inspection to be conducted selectively as

deemed necessary depending on circumstances.

iv. Need to devise a suitable system for co-coordinating the on-site inspection of

the NBFCs by the Reserve Bank in tandem with other regulatory authorities so

that they were subjected to one-shot examination by different regulatory

authorities.


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v. Some of the non-banking non-financial companies like industrial/manufacturing

units were also undertaking financial activities including acceptance of deposits,

investment operations, leasing etc to a great extent. The committee stressed the

need for identifying an appropriate authority to regulate the activities of these

companies, including plantation and animal husbandry companies not falling

under the regulatory control of Either Department of Company Affairs or the

Reserve Bank, as far as their mobilization of public deposit was concerned.

vi. Introduction of a system whereby the names of the NBFCs which had not

complied with the regulatory framework / directions of the Bank or had failed to

submit the prescribed returns consecutively for two years could be published in

regional newspapers.

4. Narasimhan Committee (1991)

This committee was formed to examine all aspects relating to the structure,

organization & functioning of the financial system.

These were the committees which founded non- banking financial companies.

NON-BANKING FINANCIAL COMPANY (NBFC)

-MEANING

Non-Banking Financial Companies (NBFCs) play a vital role in the context of Indian

Economy. They are indispensible part in the Indian financial system because they

supplement the activities of banks in terms of deposit mobilization and lending. They

play a very important role by providing finance to activities which are not served by

the organized banking sector. So, most the committees, appointed to investigate into


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the activities, have recognized their role and have recognized the need for a well-

established and healthy non-banking financial sector.

Non-Banking Financial Company (NBFC) is a company registered under the

Companies Act, 1956 and is engaged in the business of loans and advances,

acquisition of shares/stock/bonds/debentures/securities issued by Government or

local authority or other securities of like marketable nature, leasing, hire-purchase,

insurance business, chit business but does not include any institution whose

principal business is that of agriculture activity, industrial activity,

sale/purchase/construction of immovable property.

Non-banking institution which is a company and which has its principal business of

receiving deposits under any scheme of arrangement or any other manner, or

lending in any manner is also a non- banking financial company.

DEFINITIONS OF NBFC.

Non-BankingFinancialCompany has been defined as:

(i) A non-banking institution, which is a company and which has its principal

business the receiving of deposits under any scheme or lending in any manner.

(ii) Such other non-banking institutions, as the bank may with the previous approval

of the central government and by notification in the official gazette, specify.

NBFCS provide a range of services such as hire purchase finance, equipment lease

finance, loans, and investments. NBFCS have raised large amount of resources through

deposits from public, shareholders, directors, and other companies and borrowing by

issue of non-convertible debentures, and so on.


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Non-banking Financial Institutions carry out financing activities but their resources are

not directly obtained from the savers as debt. Instead, these Institutions mobilize the

public savings for rendering other financial services including investment. All such

Institutions are financial intermediaries and when they lend, they are known as Non-

Banking Financial Intermediaries (NBFIs) or Investment Institutions:

UNIT TRUST OF INDIA.

LIFE INSURANCE CORPORATION (LIC).

GENERAL INSURANCE CORPORATION (GIC).

Factors contributing to the Growth of NBFCs:

According to A.C. Shah Committee, a number of factors have contributed to the

growth of NBFCs. Comprehensive regulation of the banking system and absence or

relatively lower degree of regulation over NBFCs has been one of the main reasons for

their growth. During recent years regulation over their activities has been strengthened,

as see a little later.

The merit of non-banking finance companies lies in the higher level of their customer

orientation. They involve lesser pre or post-sanction requirements, their services are

marked with simplicity and speed and they provide tailor-made services to their clients.

NBFCs cater to the needs of those borrowers who remain outside the purview of the

commercial banks as a result of the monetary and credit policy of RBI. In addition,marginally higher rates of interest on deposits offered by NBFCs also attract a large

number of depositors

Regulation of NBFCs

In 1960s, the Reserve Bank made an attempt to regulate NBFCs by issuing directions to

the maximum amount of deposits, the period of deposits and rate of interest they couldoffer on the deposits accepted. Norms were laid down regarding maintenance of certain


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percentage of liquid assets, creation of reserve funds, and transfer thereto every year a

certain percentage of profit, and so on. These directions and norms were revised and

amended from time to time.

In 1997, the RBI Act was amended and the Reserve Bank was given comprehensivepowers to regulate NBFCs. The amended Act made it mandatory for every NBFC to

obtain a certificate of registration and have minimum net owned funds. Ceilings were

prescribed for acceptance of deposits, capital adequacy, credit rating and net-owned

funds. T he Reserve Bank also developed a comprehensive system to supervise NBFCs

accepting/ holding public deposits. Directions were also issued to the statutory auditors

to report non-compliance with the RBI Act and regulations to the RBI, Board ofDirectors and shareholders of the NBFCs.

CLASSIFICATION OF NBFCs:

This classification is in addition to the present classification of NBFCs into deposit-

taking and Non-deposit-taking NBFCs. Depending on the nature their major activity,

the non-banking financial companies can be classified into the following categories, they

are:

(1) Equipment leasing companies.

(2) Hire-purchase finance companies.

(3)

Housing finance-companies.

(4) Investments companies.

(5) Loan companies.

(6) Mutual Fund Benefit Companies.

(7) Chit fund companies.

(8) Residuary companies.

Equipment Leasing Company:


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(a) Equipment leasing company means any company which is carrying on the activity

of leasing of equipment, as its main business, or the financing of such activity.

(b) The leasing business takes place of a contract between the lessor (lessor means

the leasing company) and the lessee (lessee means a borrower).

(c) Under leasing of equipment business a lessee is allowed to use particular capital

equipment, as a hire, against a payments of a monthly rent.

(d) Hence, the lessee does not purchase the capital equipment, but he buys the right

to use it.

(e) There are two types of leasing arrangements, they are:

(i) Operating leasing: In operating leasing the producer of capital equipment offers

his product directly to the lessee on a monthly rent basis. There is no middleman

in operating leasing.

(ii) Finance leasing: In finance leasing, the producer of the capital equipment sells

the equipment to the leasing company, then the leasing company leases it to the

final user of the equipment. Hence, there are three parties in finance leasing. The

leasing company acts as a middleman between the producer of equipment and

the user of equipment.

Benefits/Advantages of Leasing:

(1) 100% finance:

They borrower in the equipment can get up to 100% finance for the use of

capital through leasing arrangement in the sense, that the leasing company

provides the equipment immediately and the borrower need not pay the full

amount at once. Hence, the borrower can use the amount for fulfilling other

needs such as expansion development, etc.(2) Payment is easier:


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Leasing finance is costlier. However, the borrower finds it convenient (easy) as he

has to pay in installments out of the return from the investment in the

equipment. Hence, the borrower does not feel the burden of payment.

(3) Tax concessions:

The borrower can get tax concessions in case of leasing equipments. The total

amounts of rent paid on leased equipment are deducted from the gross income.

In case of immediate purchase, interest on the loan and the depreciation are

deducted from the taxable income.

Hire-purchase Finance Companies:

(a) Hire purchase finance company means any company which is carrying on the

main business of financing, physical assets through the system of hire-purchase.

(b) In hire-purchase, the owner of the goods hires them to another party for a

certain period and for a payment of certain installment until the other party

owns it.

(c) The main feature of hire-purchase is that the ownership of the goods remains

with the owner until the last installment is paid to him. The ownership of goods

passes to the user only after he pays the last installment of goods.

(d) Hire-purchase is needed by farmers, professionals and transport group people to

buy equipment on the basis of hire purchase.

(e) It is a less risky business because the goods purchased on hire purchase basis

serve as securities till the installment on the loan is paid.

(f) Generally, automobile industry needs lot hire-purchase finance.

(g) The problem of recovery of loans does not occur in most cases, as the borrower

is able to pay back the loan out of future earnings through the regular

generation of funds out of the asset purchased.

(h) In India, there are many individuals and partnership firms doing this business.Even commercial banks, hire-purchase companies and state financial corporations


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provide hire-purchase credit.

Housing Finance Companies:

(a) A housing finance company means any company which is carrying on its main

business of financing the construction or acquisition of houses or development of

land for housing purposes.

(b) Housing finance companies also accept the deposits and lend money only for

housing purposes.

(c) Even though there is a heavy demand for housing finance, these companies have

not made much progress and as on 31st March, 1990 only 17 such companies

here reported to the RBI.

(d) The ICICI and the Canara Bank took the lead to sponsor housing finance

companies, namely, Housing Development Corporation Ltd. and the Canfin

Homes Ltd.

(e) All the information about the Housing finance companies is available with the

National Housing Bank. Housing finance companies also have to compulsorily to

register themselves with the Reserve Bank of India.

(f) National Housing bank is the apex institution in the field of housing. It promotes

housing finance institutions, both on regional and local levels.

Investment Companies:

(a) Investment company means any company which is carrying on the main business

of securities.

(b) Investment companies in India can be broadly classified into two types:

(1) Holding Companies:

(i) In case of large industrial groups, there are holding companies which buy sharesmainly for the purpose of taking control over another institution.


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(ii) They normally purchase the shares of the institution with the aim of

controlling it rather than purchasing shares of different companies.

(iii) Such companies are set up as private limited companies.

(2) Other Investment Companies:

(i) Investment companies are also known as Investment trusts.

(ii) Investment companies collect the deposits from the public and invest them in

securities.

(iii) The main aim of investment companies is to protect small investors by

collecting their small savings and investing than in different securities so that

the risk can be spread.

(iv) An individual investor cannot do all this on his own, due to lack of expertise in

investing. Hence, investing companies are formed for collective investing.

Companies are formed for collective investments of money, mainly of small

investors.

(v) Another benefit of an investment company is that it offers trained, experienced

and specialised management of funds.

(vi) It helps the investors to select a financially sound and liquid security.

Liquid security means a security which can be easily converted into cash.

(vii)In India investment trusts are very popular. They help in putting the savings of

people into productive investments.

(viii)Some of the investment trusts also do underwriting, promoting and holding

company business besides financing.

(ix)These investments trusts help in the survival of business in the economy by

keeping the capital market alive, active and busy.

Loan company:

(a) A loan company means any company whose main business is to provide finance


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through loans and advances.

(b) It does not include a hire purchase finance company or an equipment leasing

company or a housing finance company.

(c) Loan company is also known as a Finance Company".

(d) Loan companies have very little capital, so they depend upon public deposits as

their main source of funds. Hence, they attract deposits by offering high rates of

interest.

(e) Normally, the loan companies provide loans to wholesalers, retailers, small-scale

industries, self-employed people, etc.

(f) Most of their loans are given without any security. Hence, they are risky.

(g) Due to this reason, the loan company charges high rate of interest on its loans.

Loans are generally given for short period of time but they can be renewed.

Mutual Benefit Financial Company:

(a) They are the oldest form of non-banking financial companies.

(b) A mutual benefit financial company means any company which is notified under

section 620A of the Companies Act, 1956.

(c) It is popularly known as "Nidhis".

(d) Usually, it is registered with only very small number of shares. The value of the

shares is often Rs. 1 only

(e) It accepts deposits from its members and lends only to its members against

tangible securities.

Chit-fund Companies:

History:

The chit fund schemes have a long history in the southern states of India. Rural

unorganized chit funds may still be spotted in many southern villages. However,organized chit fund companies are now prevalent all over India. The word is Hindi and


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chances of profit.

(f) Chit funds have many defects as the rate of return given to each member is not

the same.

(g) It differs from person to person, this leads in improper distribution of gains and

losses.

(h) Also, the promoters of these funds do everything for their own benefit to get

maximum income.

(I) Hence, the banking commission has made suggestions to pass uniform chit funds

laws for the whole of India.

Residuary Non-banking Companies:

(a) The term "residue" means a small part of something that remains. As the

meaning of the term shows, a residuary company is one which does not fall in

any of the above categories.

(b) It generally accepts deposits by operating different schemes similar to recurring

deposit schemes of banks.

(c) Deposits are collected from a large number of people by promising them that

their money would be invested in banks and government securities

(d) The collection of deposits is done at the doorsteps of depositors through bank

staff, who is paid commission.

(e) These companies get the funds at low cost for longer terms, at they invest them

in investments which generates good amount of return.

(f) Many of these companies operate with very small amount of capital.

(g) They have some adverse (bad) features, such as:

(ii) Some do not submit periodic returns to the regulatory authority.(iii) Some of them do not appoint banks, etc.


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ROLE OF NON- BANKING FINANCIAL COMPANIES.

(1) Promoters Utilization of Savings:

Non- Banking Financial Companies play an important role in promoting the utilization

of savings among public. NBFCs are able to reach certain deposit segments such as

unorganized sector and small borrowers were commercial bank cannot reach. These

companies encourage savings and promote careful spending of money without much

wastage. They offer attractive schemes to suit needs of various sections of the society.

They also attract idle money by offering attractive rates of interest. Idle money meansthe money which public keep aside, but which is not used. It is surplus money.

(2) Provides easy, timely and unusual credit:

NBFCs provide easy and timely credit to those who need it. The formalities and

procedures in case of NBFCs are also very less. NBFCs also provides unusual credit

means the credit which is not usually provided by banks such as credit for marriageexpenses, religious functions, etc. The NBFCs are open to all. Every one whether rich or

poor can use them according to their needs.

(3) Financial Supermarket:

NBFCs play an important role of a financial supermarket. NBFCs create a financial

supermarket for customers by offering a variety of services. Now, NBFCs are providing

a variety of services such as mutual funds, counseling, merchant banking, etc. apart

from their traditional services. Most of the NBFCs reduce their risks by expanding their

range of products and activities.

(4) Investing funds in productive purposes:


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NBFCs invest the small savings in productive purposes. Productive purposes mean they

invest the savings of people in businesses which have the ability to earn good amount

of returns. For example In case of leasing companies lease equipment to

industrialists, the industrialists can carry on their production with less capital and the

leasing company can also earn good amount of profit.

(5) Provide Housing Finance:

NBFCs, mainly the Housing Finance companies provide housing finance on easy term

and conditions. They play an important role in fulfilling the basic human need of

housing finance. Housing Finance is generally needed by middle class and lower middle

class people. Hence, NBFCs are blessing for them.

(6) Provide Investment Advice:

NBFCs, mainly investment companies provide advice relating to wise investment of

funds as well as how to spread the risk by investing in different securities. They protect

the small investors by investing their funds in different securities. They provide

valuable services to investors by choosing the right kind of securities which will help

them in gaining maximum rate of returns. Hence, NBFCs plays an important role by

providing sound and wise investment advice.

(7) Increase the Standard of living:

NBFCs play an important role in increasing the standard of living in India. Peop le with

lesser means are not able to take the benefit of various goods which were onceconsidered as luxury but now necessity, such as consumer durables like Television,

Refrigerators, Air Conditioners, Kitchen equipments, etc. NBFCs increase the Standard

of living by providing consumer goods on easy installment basis. NBFCs also facilitate

the improvement in transport facilities through hire- purchase finance, etc. Improved

and increased transport facilities help in movement of goods from one place to another

and availability of goods increase the standard of living of the society.

(8) Accept Deposits in Various Forms:


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NBFCs accept deposits forms convenient to public. Generally, they receive deposits

from public by way of depositor a loaner in any form. In turn the NBFCs issue

debentures, units certificates, savings certificates, units, etc. to the public.

(9) Promote Economic Growth:

NBFCs play a very important role in the economic growth of the country. They

increase the rate of growth of the financial market and provide a wide variety of

investors. They work on the principle of providing a good rate of return on saving,

while reducing the risk to the maximum possible extent. Hence, they help in the

survival of business in the economy by keeping the capital market active and busy.

They also encourage the growth of well- organized business enterprises by investing

their funds in efficient and financially sound business enterprises only. One major

benefit of NBFCs speculative business means investing in risky activities. The investing

companies are interested in price stability and hence NBFCs, have a good influence on

the stock- market. NBFCs play a very positive and active role in the development of

our country.

Functions of Non- Banking Financial Companies:

(1) Receiving benefits:

The primary function of nbfcs is receive deposits from the public in various ways such

as issue of debentures, savings certificates, subscription, unit certification, etc. thus, the

deposits of nbfcs are made up of money received from public by way of deposit or loan

or investment or any other form.

(2) Lending money:


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While commercial banks and non-banking financial companies are both financial

intermediaries (middleman) receiving deposits from public and lending them.

Commercial bank is called as Big brother while the NBFC is called as the Small

brother. But there are some important differences between both of them, they are as

follows:

No. Commercial Banks. Non Bank Financial companies.

1 Issue of cheques:

In case of commercial banks, a cheque

can be issuedagainst bank deposits.

In case of NBFCs there is no facility to

issue chequesagainst bank deposits.

2 Rate of interest:

Commercial bank offer lesser rate of

interest on deposits and charge lessrate

of interest on loansas compared to

NBFCs.

NBFCs offer higher rate of intereston

deposits and charge higher rate of

interest on loansas compared to

Commercial banks.

3 Facilities provided by them:

Commercial banks can enjoy the benefit

of certain facilitieslike deposit insurance

cover facilities, refinancing facilities, etc.

NBFCs are not givensuch facilities.


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4 Law which governs them:

Commercial banks are regulated by

Banking Regulation Act 1949 and RBI.

NBFCs are regulated by different

regulation such as SEBI,Companies Act,

National Housing Bank, Unit Fund Act

and RBI.

5 Types of assets:

commercial banks holda variety of

assetsin the form of loans, cash credit,

bill of exchange, overdraft etc.

NBFCs specialize in one types of asset.

For e.g.: Hire purchase companies

specialize in consumer loans while

Housing Finance Companies specialize in

housing finance only.

About Us

We are the largest gold financing company in India in terms of loan portfolio. (Source:IMaCS Industry Report (2010 Update). We provide personal and business loans securedby gold jewellery, or Gold Loans. We are a Systemically Important Non-deposit takingNBFC headquartered in the southern Indian state of Kerala. Our promoters areMr.M.G.George Muthoot , Mr.George Thomas Muthoot , Mr. George Jacob Muthootand Mr.George Alexander Muthoot. Our operating history has evolved over a period of70 years since M George Muthoot (the father of our Promoters) founded a gold loanbusiness in 1939 under the heritage of a trading business established by his father,Ninan Mathai Muthoot, in 1887. As of March 31, 2010 our branch network was the

largest among gold loan NBFCs in India(Source: IMaCS Industry Report (2010 Update).Our branch network as of August 31, 2010 was 1,921 branches


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The Muthoot Groupis an 123-year-old business house based in India. It has

interestsinFinancialServices,InformationTechnology,Media,Healthcare,Education,Powergeneration,Infrast

ructure,Plantations,Precious Metals and Hospitality. The Muthoot Group operates in21 states in India, and has a customer base of over 25 million. It is wholly owned and

managed by theMuthoot Family.The Group takes its name from the Muthoot Family based in Kerala. The Company was

set up by Muthoot Ninan Mathai in 1887 at Kozhencherry, a small town in theerstwhileKingdom of Travancore (Kerala). It was then later taken over by his sonMGeorge Muthootwho incorporated the Finance division of the group which was till

then primarily involved in wholesale of grains. The company is now managed by thethird and fourth generation of its family members.

Overview

e are the largest gold financing company in India in terms of loan portfolio. (Source:

IMaCS Industry Report (2010 Update). We provide personal and business loans secured

by gold jewellery, or Gold Loans. We are a Systemically Important Non-deposit taking

NBFC headquartered in the southern Indian state of Kerala. Our promoters are

Mr.M.G.George Muthoot , Mr.George Thomas Muthoot , Mr. George Jacob Muthoot

and Mr.George Alexander Muthoot. Our operating history has evolved over a period of

70 years since M George Muthoot (the father of our Promoters) founded a gold loan

business in 1939 under the heritage of a trading business established by his father,

Ninan Mathai Muthoot, in 1887. As of March 31, 2010 our branch network was the

largest among gold loan NBFCs in India(Source: IMaCS Industry Report (2010 Update).

Our branch network as of August 31, 2010 was 1,921 branches.
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Type PrivateConglomerate

Industry FinanceHotels &Resorts

Information technologyBroadcast Media

HealthcareEducationEnergy &Power Generation

Infrastructure

Founded 1887 byMuthoot Ninan Mathai

Headquarters Kochi,India

Key people M G George Muthoot (Chairman)George Alexander Muthoot (MD)George Jacob Muthoot (Whole-Time Director

Director)George Thomas Muthoot (Whole-Time Director))

Employees 10,000 (2009)

Website muthootgroup.com
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Justice K. John Mathew retired), Independent Director

is a graduate in law from theGovernment Law College, Ernakulam and is a retired judge of the High Court of Kerala.After retirement, he was appointed as a one man commission to investigate into thefinancial and administrative irregularities in the Aligarh Muslim University. He hasserved as the Chairman of the Cochin Stock Exchange and was a SEBI nominee director

of the Cochin Stock Exchange from 2002 to 2007. He is currently the President of thePeoples Council for Social Justice, Kerala.

P. George Varghese, Independent Directoris a graduate in mechanical engineering fromKerala University and holds a masters degree in business administration from CochinUniversity of Science and Technology. He is the managing director of FCI OENConnectors Limited and FCI Technology Services Limited. He is a trustee of the IMABlood Bank, Kochi and is a member of the governing council of DC School ofManagement and Technology. He has served as the vice-president of the KeralaManagement Association from 2006 to 2007 and has been on the managing committee

of the Indo American Chamber of Commerce from 1992 to 1999. He is also a memberof the CII-Kerala.

John K Paul, Independent Director is a graduate in engineering from the RegionalEngineering College, Kozhikode and a businessman by profession. He is a director ofPopular Automobiles Limited, Popular Vehicles & Services Limited, the first Marutidealer in Kerala and of Popular Mega Motors (India) Limited., the dealer for TATACommercial Vehicles. He is trustee of the Kuttukaran Institute for HRD, which is aleading institution offering professional courses. He was the president of the Kerala

Chamber of Commerce and Industry from 2005 to2006. He was also the president ofboth the Kerala Hockey Association from 2005 onwards and the Ernakulam DistrictHockey Association from 2004 onwards.

FINANCE

Muthoot Finance a subsidiary ofMuthoot Groupwas established in 1939, and isprimarily involved in the Financial sector of the country. Muthoot Finance falls under

the category of Non Banking Financial Company (NBFCs) of the RBI guidelines. Thecompany has more than 2038 branches spread across 23 states of the country and is

the largest gold loan company in India.. Muthoot Finance, according to the IMaCSResearch & Analytics Industry Reports [Gold Loans Market in India, 2009 (IMaCSIndustry Report 2009) and the 2010 update to the IMaCS IndustryReport 2009

(IMaCS Industry Report (2010 Update))], is the largest Gold Loan NBFC and has thelargest network of branches for a Gold Loan NBFC in India.. Muthoot Finance is also

the highest credit rated Gold Loan company in India, with a credit rating of AA-(CRISIL)for its Long Term Debts and P1+ (CRISIL) & A1+ (ICRA) for its Short TermDebt Instruments.
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Muthoot Gold Power is the lifestyle product of Muthoot Finance aimed at mobilizing

the Household gold in India which is estimated to be more than 15000 tonnes. MuthootFinance according to its company website has "the largest gold loan portfolio in the

country". Muthoot also provides various financial services such as Insurancedistribution, Wealth Management, Foreign Exchange, Money Transfer and Vehicle &

Asset Finance. Muthoot Finance was selected as one of the Top 10 Finance companiesto work for in India by Naukri.com[7]Muthoot Finance privately placed 4% of its paidup capital to Private Equity players -Barings India andMatrix Partners India for Rs.1.57

billion, hence valuing the earlier privately held company at over $1 billion.

INFORMATION TECHNOLOGY

Emsyne, the information technology wing of the group develops products for the

service, education and healthcare industry. Emsyne offers on site and offshore services,whether project-based outsourcing / assignments, or based on time and materials. TheCore Products of Emsyne are Edge - Educational Institutions Management System Finex

- Innovative Banking Automation System

SECURITIES

Muthoot Securities offers broking services in cash and derivatives segments at theNational Stock Exchange and Bombay Stock Exchange. It has a network of more than100 branches. Muthoot Securities launched its portfolio management services on 20August 2009.

MEDIA

Chennai Live 104.8 is India's first talk radio FM station. The station would be focusing

on knowledge centric and local content and will be targeting the information andentertainment needs of Chennai's intelligent community.

HEALTHCARE

The Group operates several Diagnostic & Scan centers throughout Kerala and 2 multi-specialty hospitals in Kozhencherry andPathanamthitta.
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HOTELS & HOSPITALITY

Muthoot Hotels operates a 4 star resort inThekkady (Kerala) and also operates 12houseboats in thebackwaters of Kerala under the brand Muthoot River Escapes.

Kaapi Club is a chain of South Indian coffee outlets managed by MuthootHotels. Muthoot Hotels is in the process of constructing a 5 star luxury hotel in thecity of Kochi and 5 star beach resort in Mararikulam.

HOUSING & INFRA-STRUCTURE

The projects of Muthoot Builders are primarily situated in central and south Kerala,Muthoot has a track record of more than 30 completed projects including commercial

and residential spaces.

OTHER DIVISION

Muthoot has interests in Power Generation through windmill farms in the state ofTamil Nadu. The group also manages a school in New Delhi and 2 Nursing Colleges inKerala. In the year 2008 the group re-entered theplantationbusiness, the group hasacquired 1000 acres of land inSawantvadi,Maharashtra as a pilot planting ofrubber.

PHILANTROPHY

Muthoot M George Charity FoundationSet up in memory of the Late M. GeorgeMuthoot, the Foundation has been extending financial aid for its employees as part ofthe Staff Welfare measures. Every branch of The Muthoot Group is actively involved inCommunity Development and Social Welfare. The Muthoot Foundation frequentlygrants medical and financial aid to deserving individuals through its welfare programs.Community support is a corporate responsibility. The Muthoot Group maintains itsposition as a valued and responsible corporate citizen by enhancing the quality of life inthe communities where they do business. It is very important for a corporate tosupport the community in which it operates. The Muthoot M. George CharitableFoundation is approached by numerous organizations and individuals requestingfinancial and medical assistance.Muthoot Medical Centersat Kozhencherry and Pathanamthitta are super specialtyhospitals set up in the rural areas of Kozhencherry and Pathanamthitta. They are bothorganizations established in 1989.

ENVIRONMENT RESEARCH CENTRE
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The Periyar Foundationset up by Muthoot Hotels is based in the town of Thekkady,near the Periyar National Park has undertaken several projects for the conservation ofthe national park including 'vasantha sena' and a research study along with the NationalInstitute of Advance Studies for the conservation of 'Nocturnal Flying Squirrels'.

FINANCIAL SERVICE IN INDIA

The financial services sector contributed 15 per cent to India's GDP in FY09, and is thesecond-largest component after trade, hotels, transport and communication allcombined together, as per the Banking & Finance Journal, released by an industry body

in August 2010.

Share of Financial services, banking, insurance and real estate sectors is expected toenhance by 9.7 per cent for the year 2009-10 to 17.2 per cent of GDP (at factor cost).

Data sourced from SEBI shows that the number of registered FIIs stood at 1,738 andnumber of registered sub-accounts rose to 5,592 as of November 10, 2010.

Overseas funds infused into Indian capital market in 2010 stood at US$ 39 billion.According to data released by Securities and Exchange Board of India (SEBI), stocks anddebt securities over worth US$ 17.28 billion were purchased by the foreign institutionalinvestors (FIIs) from the Indian capital market in January 2011.

According to data available with SEBI, FIIs have made investments worth US$ 4.11billion in equities and invested US$ 667.71 million into the debt market.

The average assets under management of the mutual fund industry stood at US$ 147.99billion for the quarter ended December 2010, according to the data released byAssociation of Mutual Funds in India (AMFI).

As on January 21, 2011, India's foreign exchange reserves totaled US$ 299.39 billion,according to the Reserve Bank of India's (RBI) Weekly Statistical Supplement.

According to Venture Intelligence, a research firm, private equity firms invested US$7,974 million over 325 deals in India during 2010, as against US$ 4,068 million (over290 deals) in 2009. The largest investment reported during the year was the US$ 425million raised by power generation firm Asian Genco from investors including GeneralAtlantic, Goldman Sachs, Morgan Stanley, Everstone and Norwest.

According to a global consultancy firm Ernst & Young (E&Y), sectors such as powerand transportation, consumer and branded products, infrastructure ancillaries,


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education and financial services, and healthcare are likely to witness increased PEactivity in 2011.

Deals

India Inc announced merger and acquisition (M&A) deals worth a record US$ 55 billion

in 2010, including a record number of billion-dollar transactions.

The number of mergers and acquisitions (M&A), private equity (PE) transactions andQualified Institutional Placements (QIP) increased close to 40 per cent to US$ 3.23billion in November 2010. Besides, there have been US$ 9 billion plus deals in 2010, thehighest seen in any year.

Fund-raising activity gained pace by almost 65 per cent in 2010 as compared to 2009.In real terms, 27 funds were able to raise US$ 13 billion as PE as against US$ 8 billion

by 22 funds in 2009. There has also been a more than 80 per cent growth in PE andVC investments in India: 2010 witnessed 348 deals worth $8 billion, against 317 dealsworth $4.4 billion in 2009, according to VCCedge data.

Stock markets

Market capitalisation of India as a proportion of world market cap has risen to a recordhigh. According to data sourced from Bloomberg, the country's market capitalisation asa proportion of the world market cap is currently 3.34 per cent. India's current market-

cap is US$ 1.55 trillion as compared with world market-cap of US$ 46.5 trillion. This ishigher than 3.12 per cent share India enjoyed at the market peak of January 2008.

As analyzed by Venture Intelligence, private equity firms obtained exit routes for theirinvestments in a record 121 companies during 2010, including 24 via IPOs. (2009 had

witnessed 66 liquidity events including 7 via IPOs). PE-backed companies raised aboutUS$ 2.20 billion via IPOs during 2010.

Insurance

The Indian Life Insurance industry is one on the strongest growing sectors in the

country. Currently a US$ 41-billion industry, India is the fifth largest life insurancemarket and growing at a rapid pace of 32-34 per cent annually. Currently, there are 22


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life insurance companies operating in India, according to the Life Insurance Council(LIC).

According to data released by the Insurance Regulatory and Development Authority(IRDA), insurance companies garnered US$ 11.73 billion in new business premiumduring April-August 2010, against US$ 6.90 billion in the corresponding period last

year.

Further, according to IRDA, in October 2010, life insurance companies collected firstyear premium worth US$ 542.19 million (individual single premium). For the period upto October 2010, total premium collected by life insurance companies was US$ 4.66billion, as compared to US$ 2.39 billion collected in the same period of 2009(individual single premium).

The life insurance industry is expected to cross the US$ 66.8 billion total premium

income mark in 2010-11. "This year, we are expecting a growth of 18 per cent in totalpremium income. If achieved, it is expected to cross the US$ 64.4 billion mark," said SBMathur, Secretary General, Life Insurance Council. Total premium income, at US$56.04 billion, rose 18 per cent during 2009-10, against US$ 47.6 billion in the previous

year.

Banking services

Significantly, on a year-on-year basis, bank credit grew by 24.4 per cent in 2010 as

against RBIs projections of 20 per cent for the entire fiscal 2010-11.

Branches in India (2749)

Andhra pradesh (334) Bihar (5) Chandigarh (13)

Chathisgarh (6) Daman (1) Delhi (180)

Goa (4) Gujarat (106) Haryana (86)

Himachal pradesh (3) Jammu & kashmir (10) Jharkhand (3)

Karnataka (252) Kerala (624) Madhya pradesh (34)
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Maharashtra (103) Orissa (14) Pondicherry (7)

Punjab (105) Rajasthan (70) Tamilnadu (610)

Financial Inclusion

Financial Inclusion is (A) Ensuring access to financial services (B) Timely andadequate credit (C) Vulnerable groups (D) Affordable Cost.

India is ranked 50

th

in the first ever index of financial inclusion. Out of the more than 6,00,000 rural habitations, only about 32,000 have a

commercial branch.

Just over 40% of the population have bank accounts.

Immense benefits for government (A) Route the social welfare schemes directly(B) Reduce leakage (C) Reduction in time taken for the impact of benefit to be

visible (D) Substantial savings in transaction cost.

How does Gold Benefit this?

A 27% fall over the period of 2 years due to recession.

India accounts for 18% of the global gold jewelry consumption.

Consumers demand trends for individual countries for 2009 show that India isstill the top consumer, thanks to a 57% consumption growth.

The Debt Trap faced by Middle-Class & Poors.

Borrowing by rural India as earnings not stable. Absence of Banks drives them to Moneylenders.

High Interest Charged.

Cycle of defaults and rollovers at even higher rates.

Eventually title to the property is transferred to Moneylenders.

Advantages of Gold Loans

Avoid debt trap.

Simple procedure, fast disbursal.
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No depreciation of underlying asset.

No questions asked.

Suited for unorganised sector.

Gains for wider economy.

Rise of Gold Loan Markets.

Wanning resistance among Indian midlle and upper middle class towards goldloans.

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 4,00,000 for NBFC and25,000 to 1,00,000.

Process for Obtaining Gold Loan.

Approach 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 Growth.

CAGR 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.


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15% Y-o-Y increase in number of people taking gold loans and 28% increase indispersals during the same period.

Muthoot has seen 75% growth in number of persons availing gold loans and 81%increase in dispersals.

HDFC bank has clocked 60% growth.

Muthoot Finance

Quick Stats.

Maximum per gram rates- 1600/gram for standard 99.9% purity of gold.

0% processing fee and no hidden cost.

Rates of interest starting from 1% per month.

8 different schemes suiting all categories.

Only identity proof required. Any person- Number of account required.

Interest only for actual number of days.

100% insured and gold kept in strong rooms only.

Anytime redemption facility without penalty.

Special rewards points for M-Power card holders.

Road Ahead

Potential vechile 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, needed to separate it from unscrupulous money-lenders, distinction between NBFC lending and loan against gold.

Gold monetisation process will open up the sector and enable the circulation of18,000 tonnes of gold (worth approx 30,00,000 crore) back into the economy.


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Gold Loans- Personal loan against gold: A financing option for short term needs

For Indians, gold is considered as an essential investment from a cultural, emotionaland safety perspective. One bought, is a dead investment. It tends to lie in the lockernot earning you any money. Why not make use of it in your time of need? You canmonetise this idle asset to help you tide over your financial need. So if ever you find

yourself in need of money, consider gold loans as an option. Gold loans also know asgold deposits are loans given by banks/ NBFCs by taking gold as a security.

Gold loans are not new to the Indian market. It existed but in the unorganised sectorwhere money lenders used gold as a security for providing loans. Now banks haveentered this space in a big way because the market is very large considering the factthat most Indians tend to have sufficient investment in gold. More importantly, withmore and more women working in the family, people have become broadminded. Sothe social stigma that was once attached to taking a loan on gold is gradually beingeliminated.

Off late, this product has become popular because of the substantial rise in gold prices.The quantum of loan that one can get by giving gold as security has increasedtremendously making it an attractive loan proposition.

What is the process to be followed to obtain a gold loan?

You offer your jewellery to the lender who can be a bank or an NBFC. The lender willevaluate the purity of the jewellery. The charge for evaluation is generally borne by the

borrower. Once the evaluation is done, the paper work for the mortgage is done. Bankswill ask you to produce personal documents such as Pan Card, address proof amongother things. The lender will give you a loan which in most cases can be up to a
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maximum of 80% of the value of the jewellery. After having repaid the loan, you getyour gold back from the lender.

Features

Secured Loan:Gold loan is essentially borrowings against the security i.e. gold. Thusthis loan should be taken only if youre absolutely sure that you will be able to repaythe loan else you may end up losing your gold.

Tenure:Gold loans are typically for duration of 3 to 12 months. They are thus bestused to fund short term monetary requirements.

No end use restrictions:The loan can be taken for any purpose so long as the money is

not being used for speculative purposes

Loan amount: In most cases, the maximum loan value is not more than 80% of thevalue of gold. Most banks deal in relatively higher loan amounts. NBFCs on the otherhand, deal in small value loans

Interest Rate:The interest rate charged by banks can be in the range of 11.5% and 15%.Banks usually charge a processing fee while NBFCs may not charge the same. The rateof interest charged by NBFCs is much higher as compared to banks.

Repayment: The loan can be foreclosed at any time without any penalty. In case ofirregular payment of EMIs, a penal interest of up to 2% is charged by banks.

Market risk: The lender retains the exposure to the market risk arising frommovements in the market price of gold

Advantages

Quick processing:Gold loans require minimum documentation and hence it can beresorted to in times of urgent need. Banks maintain that it takes a few hours to get agold loan and in NBFCs like MANAPPURAM FINANCE (GOLD LOAN SUPERCOMPANY) it takes only a few minutes.

More attractive than a personal loan: The rate of interest charged on gold loans tends

to be much lower than that of a personal loan. Therefore, it may be worthwhile puttingyou asset to work and thus reducing your cost of loan.
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Emotional attachment will ensure timely payment:Most families have an emotionalattachment to gold and that will make you morally responsible to repay the loan intime so that you can get back the gold that you had placed as a security

Cash flow management:In a typical loan against gold transaction, only interest needs tobe paid during the tenure of the loan and the principal amount has to be repaid at theend of the tenure. This allows customers the borrower to manage cash flows better.

Gold loan become better option than personal loan

As a substitute of taking on a personal loan at exorbitant rates of interest, its

worthwhile to check out loansagainst gold being offered by banks. Loans with gold as

security comeat a very low interest rate of around 12 %, compared with upwards of

17% on unsecured personal loans. Several banks have already begun to lend against

gold.

Its also a period when the gold loans business is expected to be a focus area for several

banks because itoffers lenders an opportunity to tap the individual loans

segmentwithout getting involved in risky unsecured personal loans.

Leading Gold Loan NBFC , Manappuram Finance, is planning to aggressively grow its

gold loan portfolio with easyprocessing methods and competitive interest rates.

Manappuram s gold loanportfolio has been growing at over 60 % for the past two

years with twoproducts -- the gold overdraft facility offered at 14 to 15 % and goldloans

at 12.5 %.

The most active players lending against gold are non-bankingfinancial companies such

as Manappuram Finance which lends at 12% and offers a loan as high as Rs 1,725 per

gm, which is very close tothe market price.

With the opportunity being vast, we will continue to look to growthis portfolio. We

plan to increase the number of branches offeringgold loans from 1150 to 2500 over the

course of next year, said, by one of the top official.

The World Gold Council estimates that the gold monetisation processwill open up the

sector and enable the circulation of 18,000 tonnes ofgold (worth approximately Rs

30,00,000 crore) back into the economy

Ajay Mitra, managing director India, West Asia and Turkey, WorldGold Council, said,

Acceptance of gold for loans by banks andfinancial institutions is an important

development that will infusegreater confidence in gold as an asset class.
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Are Gold Loans Safe?

Source: Economic Times- 14thNovember, 2010

The glitter of gold loans

You may ignore the sparkle of the yellow metal itself, but it is really difficult tooverlook the glitter of gold loans these days. In fact, spurred by soaring prices, rise inconsumerism and, more importantly, changing social norms, gold loans have not onlyseen an unprecedented rise in recent times, but are also all set to shine more brightlyin future.

Sample this: The organized gold loan market in India, pegged at 25,000 crore in FY2009, grew at a compounded annual growth rate (CAGR) of around 38% between FY2002 and FY 2009 and is expected to grow at an annual rate of 35-40 % over the nextthree years to reach a portfolio size of 50,000-53 ,000 crore by FY11. This study by

ICRA Management Consulting Services alone is enough to set the alarm bells ringingfor those in the pawn broking business. The reasons for this kind of growth in goldloans, however, are not far to seek.

Low interest rates

Firstly, it is convenience. The sheer convenience of a loan proposition against such aliquid asset suits both the lender and the borrower. In some cases, it may be the lastresort for the client, but it is a convenient one. Lenders find it a timeless, good businessmodel, while clients, who need money quickly, find this the best way to raise funds,says Jayant Manglik, president of Religare Commodities.

Secondly, it is low interest rates. In fact, borrowing against gold is fast emerging as themost preferred financing option as the interest rate charged by institutions are lesscompared to other retail loans such as personal loans. For instance, the rate of intereston these loans is between 10% and 24% per annum.

In comparison, personal loans charge 16-26 % per annum, depending on your creditprofile.

Loan against gold better than a personal loan


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Therefore, it is better to take a loan against gold than a personal loan as the rates willbe lowersince this type of loan is secured. Another good reason to take a loanagainst gold is that most banks/NBFCs allow you to pay only the interest on the loanmonthly and the principal payment at the end of the term and not as an EMI; which

works better from an interest perspective, says Lovaii Navlakhi, managing director &chief financial planner, International Money Matters.

Besides, you can decide the approximate loan amount based upon your gold value, i.e.no income proof is required unlike in a personal loan where the loan amount is decidedbased on your income proofs provided. The processing of the loan is also much fasterbecause of easy documentation. Banks such as ICICI Bank and HDFC Bank may ask for

your ID and other personal details which can take up to an hour while non-bankingfinance companies such as Muthoot Finance or Manappuram Finance claim to processthe loan in a few minutes.

Pledging gold is no longer considered a taboo

Also, instead of keeping gold idle in a locker at home or in a banks locker, it is a goodidea to borrow against it at lower rates in comparison to other retail loans. Moreover,lenders also prefer this route of financing as the default rate is negligible. In general,the loans may be provided for 70-85 % of the value of gold, says Amar Ranu, seniormanager, Motilal Oswal Securities.

Added to these is the fact that pledging gold is no longer considered a taboo anddisgraceful in Indian society. This explains why gold loans are now widely recognized asacceptable means of raising funds for meeting urgent requirements by all segments ofsociety. Some people also go for it because they find it more private than going to aneighborhood moneylender. Also, with gold prices soaring, even banks have begun topush customers toward gold loans. The transactions have become more popular assmall personal lending dries up because of rising defaults on risky loans.

Tread with caution while opting for a gold loan

This is, however, not to suggest that you should throw all caution to the wind whileopting for a gold loan, as the chances of losing your family heirlooms are higher in caseof a dispute or default. That is because gold loans are secured loans. So if you fail to

repay the loan within the stipulated loan period, a higher interest will be charged andthe gold may even be auctioned off.


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Typically jewellery is an item of personal use and its emotional value is sometime farhigher than its market value. If for any reason you are unable to pay pack the loan, thelender can sell your jewellery in the market to recover its dues after which you cannever get your jewellery back, says Harsh Roongta, CEO, Apnapaisa .com, a price &features comparison engine for loans, insurance and investments.

Gold loans are good in a rising market

This goes without saying, therefore, if you need money quickly and dont have anyother assets to pledge, this is a useful avenue. But if you dont have the confidence ofreturning the principal and interest in time, then you should avoid taking a loan againstgold.

Also, gold loans are good in a rising market. However, if gold prices correct drasticallyduring the loan tenure, banks may ask for the payment of the difference.

Thus, even availing a gold loan is not without risks, which explains why you need tomull the pros and cons of pledging the yellow metal carefully and also look for someother options available before going for a gold loan. It also makes sense to consider in

what circumstances you should go for it and when to avoid it.

Look for some other options

In normal circumstances, for instance, if your credit history is bad or completelybeyond repairable inner future, you can think of availing a loan against gold, that too at

a discounted rate in comparison to personal loans. Customers with low or understatedincome can also avail a loan against gold.

However, if you take a loan against gold for personal expenses such as a 3D TV, carorforeign trips, then it is quite possible that you may default on the loan. Also, a goldloan is not recommended for people with low financial IQ because there is a higher riskof default and your assets may be auctionedoff.

Normally, one does not plan to pledge ones jewellery to take a loan. Obviously, if you

possess the jewellery for a specific purposeto gift to your daughter, for exampleyou are unlikely to sell it. Economically, however, if the expected appreciation in valueis greater than the cost of the loan, it is better to take a loan. But the period for which


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you propose to borrow should be short term or temporary, and you should have a highprobabilityof being able to repaythe loan on time.

It is, however, a strict no-no to borrow against goldif you wish to use these funds forinstant gratification or speculative investments. In that case it is advisable to just look

for some other options!

Do

s and don'ts

Go for a gold loan only if you are looking for emergency funds and dont haveany other option.

Customers with bad credit history, low or understated income can also go for it.

Avoid a gold loan in case you are unable to repay the loan or are likely to default

on repayment. Avoid it if gold prices are likely to correct drastically during the loan tenure.

Dont use the funds for instant gratification or speculative investment.

Bibliography:-

1.

www.google.com

2.

www.wikipedia.com

3.

www.nbfc.com4.

www.muthootfinance.co.in

5.

Finance dept. muthoot finance gandhidham.
http://www.google.com/http://www.wikipedia.com/http://www.muthoot/http://www.muthoot/http://www.wikipedia.com/http://www.google.com/

project on muthoot finance.docx

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