Gold loans gain popularity In India
Author: Bhavana Jhingan
Author: Bhavana Jhingan
Almost every middle-class Indian family owns gold jewelry, which is central to weddings and rituals, and few traditionally have been keen to part with it to secure loans. But with gold prices high, banks have begun to push clients toward gold loans. The transactions have become even more popular as small personal lending dries up because of increasing defaults on risky loans. "India is one of the biggest consumers of gold in the world, and about 90 percent of the gold in India lies with individuals and not in banks," said Biju Pillai, executive vice president of HDFC Bank, which has the major share of gold loans among Indian banks. "But the paradox is that gold is the least leveraged product for loans. We want gold to come out of the closet." The bank's gold loans business grew 55 percent last year, he said. The market is huge, but so is the cultural wall. Over the years, many sensational Bollywood movies have reinforced the stigma, portraying the sale of gold as a sign of a man's inability to earn a living. The taboo is so deep-seated that Indians were shocked to shame in 1991 when the government pledged its gold deposits abroad to borrow money during a crunch. Through a string of television, radio and print advertisements in the past few months, banks and finance companies aggressively are pushing Indians to shed their inhibitions. Many advertisements show women initiate the decision. As gold prices have risen during the global economic slump, middle-class Indians have returned to their age-old preference for gold as a safe investment after flirting briefly with stock markets and mutual funds. Bankers say the default rate is much lower for gold loans because Indians do not want to risk losing their family jewelry. And unlike traditional personal loan, no credit checks are needed for gold loans. "Getting a gold loan is about 4 to 6 percent cheaper than procuring regular bank loans. We take five minutes, but a regular loan takes several weeks of paperwork," said K.R. Bijimon, chief general manager of Muthoot Finance. The banks now want to convince young Indians that pledging gold is a smart decision and not just a last resort.About the Author:
Working with a WRS Info India Pvt Ltd.