Could Gold Loans be the solution to current financial needs?
Faced with an acute balance of payments crisis, the Indian government had pledged 67 tonnes of gold in 1991 to the IMF (International Monetary Fund) and the Union Bank of Switzerland for a loan of $2.8 billion. Today, facing a similar cash crunch caused by the COVID-19 lockdown, ordinary Indians are doing the same; pledging their gold to raise immediate funds. In other words - taking a Gold Loan. These two events though three decades apart show that gold is a proven hedge against uncertainties; if you have idle gold you can get a Gold Loan and fulfill your financial needs on your own.
What is a Gold Loan, and why opt for it?
A Gold Loan is a secured loan in which you pledge your gold holdings (ornaments) as collateral to get cash. One of the advantages of a Gold Loan is that it is easy to avail. For instance, a leading bank like HDFC Bank sanctions Gold Loans within 45 minutes, with minimal documentation and transparent charges.
Understanding market dynamics
Due to the emotional attachment that most Indians have towards their gold, they aren’t very keen on selling their gold holdings. This is why pledging ornaments to local pawnbrokers and money-lenders has been prevalent for many decades, particularly in rural areas. This trend continues, with pawnbrokers and money lenders, comprising the unorganised sector and commanding about 65% of the market today. However, this loan route comes with its fair share of risks, which is why the organised sector is catching up fast.
Taking a Gold Loan from a reliable lender or bank, such as HDFC Bank, is a safer option. This is not only because a bank would be more trustworthy but also because it follows a systematic, documented process, which means you never have to worry about losing your gold investment through any fraudulent activity. According to Care Ratings, banks held an estimated loan book worth Rs 2.35 lakh crore around May-end 2020, thanks mainly to the rush for Gold Loans during and post the lockdown.
RBI Guidelines on Gold Loans
The Reserve Bank of India (RBI) has laid down several guidelines for Gold Loan, including one on the loan size, which is the proportion of the pledged gold’s value that can be given as a loan. This is called loan-to-value or LTV, a metric also used in gauging a lender’s risk exposure for other loans, like a home loan. For gold, the prescribed LTV is up to 75%, meaning for every Rs 100 worth of gold pledged, a borrower can get up to Rs 75. It also means the lender is covered even if the market value of the gold falls by up to 25%. The rate of interest charged on the loan is at lender’s discretion.
Several factors determine the interest rate on Gold Loans and it varies from lender to lender. HDFC Bank’s interest rates on Gold Loans, for example, are quite competitive and offer facilities like Term Loan, Overdraft
HDFC Bank Gold Loan is available instantly at its branches, with special offers and rates for existing account holders such as the Preferred, Imperia, Classic and women customers.
Gearing up for the post-lockdown society with a Gold Loan
In the backdrop of the economic slowdown, a Gold Loan is seen as a revival tool for traders, MSMEs and even some individuals. The prolonged lockdown has resulted in a decrease in manufacturing and consumption, rampant job losses and pay cuts and a major crisis of funding. In such situations, Gold Loan is a feasible option to resume business and build short-term working capital in the post-lockdown society. Besides, HDFC Bank’s speedy disbursal of a Gold Loan at reasonable interest rates is even putting more purchasing power into the hands of people, which in turn can help get the economy moving again.
Apply for Gold Loan today and fulfil your financial needs on your own like business needs, unexpected expenses and bill payments