Gold Loan: 'Eat your cake and have it too'

Mostly owned by the women, the hoarding of gold is centuries old tradition in Kashmir. Gold jewellery is the matter of prestige for the women here like rest of the Indian subcontinent and has been mostly used as a buffer asset for rainy days. It has a legacy attached to it, being transferred from one generation to another as a pride of family.

It keeps changing hands from mother to daughter or mother-in-law to daughter-in-law and the tradition goes on. Given the emotional value attached to it by the women folk, with whom most of its proprietorship in a family lies, selling of yellow metal would be preferably avoided.

Besides being considered a good investment option for long term as historically gold has kept appreciating, liquidating it would be resisted at all costs. However, in times of family exigencies and financial emergencies, after exploring all other options, people would dispose of the gold ornaments.

Due to the reluctance of families to dispose it off, the option of using the gold as collateral with local pawnbrokers or traditional moneylenders for borrowing money, instead of sell-offs, has remained prevalent for centuries. 

However, over the past few decades, the organised sector – banks and other financial companies – have taken the lead across India in formalising the pledging of gold against a loan.

The trend to use gold jewellery for raising money without selling the core asset has been also picking up for some time in Jammu and Kashmir like rest of the country.

The loan against gold jewellery, which is popularly known as gold loan, has provided an option to people to meet an emergency or fulfil a desire without liquidating your precious metal, which has huge emotional value attached to it. In other words, you can ‘eat your cake and have it too’.

Quick and easy for borrowers, gold loan market is picking up fast in urban areas, particularly, as it has proved high yielding and safe loaning for lenders as well.

While the gold loan was introduced in Jammu and Kashmir in 2010, realising its market potential in the state, Jammu and Kashmir Bank also forayed in the business few months back and has captured majority of the share in the segment in short span of time.

“Keeping up with the expectations of our customers and on demand of our customers the bank has introduced ‘J&K Bank Loan Against Gold Ornaments And Jewellery. The scheme has been tailor-made to suits the needs of the customers of our state,” J&K Bank has said after introducing the loan.

It is a best option to overcome a crisis with shortest possible time. Without lengthy procedures, requirement of guarantors or long time for approval, gold loan is sanctioned instantly and without any hassle.

Bank furnishes borrowers with this loan by keeping the gold, which is returned back to the loan borrower at the repayment of the loan. The borrower keeps his gold ornaments as collateral with the lender and takes the money against those ornaments. Many go for the fulfilment of their short-term goal through gold loans, such as their child’s education, marriage, or any other health or family problems.

 Most of the time the loan is sanctioned with an hour’s time without any lengthy documentation without any salary certificates or credit score requirements.

 Any person above the age of 18 years individually or jointly maintaining account with J&K Bank can avail the scheme. They can avail the loan against Gold Ornaments and specially minted Gold Coins sold by banks subject to 50 grams per customer.

However, bullion items like, bars and biscuits, cannot be pledged for the loan. A borrower can avail from Rs 10,000 to Rs 15 lakh assessed to the 70 percent of the value of the gold ornaments pledged. The valuation of the gold is done by the empanelled valuers and there are secure bank premises for the security of the gold pledged.

The repayment shall be in 6-12 months in equated monthly installments or a customer can choose to serve monthly interest only and repay the entire principal outstanding at the end of the loan tenure, with the facility of roll over.

Gold loan is considered as a secured loan in comparison with the personal and other loans. Therefore, the rate of the interest is also comparatively lower.

J&K Bank has one of the lowest interest rates in the industry, with 10 percent per annum and provides a discount of half percent (0.5%) to female borrowers or joint account holders with one female member. It has also the lowest processing charges and in case a borrower wants to pay back earlier than the stipulated time, he can do so without any pre-payment charges.

While it is a good option for borrowers, lenders see a huge business opportunity given the gold jewellery held by the households in the country.

It is estimated that Indian housewives hold 11 percent of the world’s gold that is more than the reserve of the USA, the IMF, Switzerland and Germany put together. Indian households have a record of 23,000-24,000 tons of the precious metal worth at least $800 billion.