How lenders prepare for an increase in demand for gold loans

Lenders are once again focusing on gold loans, expecting there to be higher demand for this product in the coming months as small businesses and individuals face cash flow issues. On June 11, ICICI Home Finance began offering gold loans through its 70 branches. Last month, Canara Bank restructured its operations to launch a gold lending vertical.

ICICI Home Finance expects more individuals to opt for gold loans as many small business owners and households face stress. “There was a time when people didn’t want to touch gold. But times have changed. The reluctance of people to pledge gold and face their cash flow problems is slowly diminishing. I feel like we’ll see. a boost in gold lending because of this, ”said Anirudh Kamani, CEO of ICICI Home Finance.

The Housing Finance Company (HFC) only offers final repayments for gold loans. By virtue of this, generally, a borrower pays the interest during the term of the loan and towards the end, repays the principal amount. “In gold loans, borrowers prefer end-payments,” Kamani said.

While the company will offer loans to a different category of customers, it will focus on small business owners who have working capital needs.

After the merger with Syndicate Bank, Canara Bank’s gold loan portfolio is now approximately ??56,000 crores. “We have created a special gold lending vertical within our senior credit because people have a cash flow mismatch,” said A Manimekhalai, executive director of Canara Bank.

According to Manimekhalai, the bank lowered interest rates when it discovered that customers preferred other lenders because they found Canara Bank’s rates to be higher. As a special targeted vertical, there will be a bank officer in each branch who will only look at gold lending.

Manimekhalai expects demand for gold loans to increase at least until September. “Starting in May, the number of loan accounts per day and the loan amount increased. We expect this to continue until things stabilize and the lockdown is fully lifted,” a- she declared.

Both lenders offer gold loans of up to one year. While ICICI Home Finance grants a loan of up to ??10 lakh, Canara bank offers a maximum amount of ??20 lakh. Most lenders claim that borrowers can get a loan in half an hour if they have their KYC (Know Your Customer) documents.

Non-bank financial corporations (NBFCs) focused on gold lending are already experiencing higher demand. “There is certainly a demand for gold lending that is currently seen in the market, however, we believe it will be some time before we start to see a noticeable increase in terms of growth in assets under management (AUM ). We also believe that with Unlock 1.0 now in place, markets are gradually opening up, which will likely lead to strong demand for gold lending in the weeks and months to come, ”said George Alexander Muthoot, Managing Director. by Muthoot Finance.

According to Muthoot, micro, small and medium-sized businesses will need instant credit facilities to jumpstart and relaunch their businesses. Gold lending works because the process is quick and requires minimal documentation. The NBFC recently launched a home gold lending service, which provides customers with the convenience of home gold banking. This is done in stages.


Lenders typically give up to 75% of the value of gold as a loan. The higher the purity of the gold, the higher the valuation and loan amount. Most lenders ask for a minimum purity of 18 carats. If you are looking to take out a loan for jewelry, the lender will ignore the value of gems and stones and will accept coins with 99.99% purity and up to 50 grams. Also, many lenders do not offer a loan against gold bullion.

Usually there is no prepayment on gold loans. Some banks may charge up to 1% of the outstanding loan. Besides the processing fees, lenders may also charge appraisal fees.

Additionally, if the borrower is unable to repay the loan on time, the lenders have the right to auction the gold. But this is done after several reminders.

A gold loan can help you overcome the temporary cash flow problem, but remember to keep the loan term short.

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