Interview Series!!! Why demand in gold loans are increasing
Why do you think there is a subsequent rise/demand for gold loan from past few years? Which city/states are leading in availing gold loan services?
By: Shailendra Wade Zonal Business Head : Rest of India, Fedbank Financial Services
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Introduction
Gold loan is a product, which will always be an option for consumers who need immediate cash or credit to meet the sudden capital requirements or personal needs like medical, education, buying certain assets, marriage in the family or other emergencies. Over the last one decade, we could see this product has been chosen over the personal loan or business loans due to its fast processing lower charges and daily repayment product. As per, historical data of past 5 years, there is a huge demand for gold loans in rural, semi urban & urban market due to cash loans over the counter and flexible repayment option to choose.
Gold loans are flexible
Gold loan offers flexibility with different options to loan seekers for short term business capital requirement also easy access to banks and NBFCs who are present in and around the market. Where you can easily reach and get the loan disbursed over the counter, makes it unique in distribution and builds regular borrowing habits which are completely need or opportunity based. This brings lot of comfort to customers to borrow and take back the gold at home with closing even next day of loan borrowing and any day during the tenure.
In India, specifically Gold holds big traditional and emotional value hence every house keeps the gold in bank or bank lockers to preserve it safe. Similarly in Banks or NBFCs while a loan is availed the storage gets free of cost , well secure and also completely insured therefore majority of the borrowers don’t hesitate to use this as a collateral to open flexible and all time available credit window.
Increased demand in Gold Loan
Due to national pandemic since last 6 months, we could see a sudden spike in the retail loan requirements. Borrowers like traders to restart their business, small manufacturer/SME to begin their business activities, salaried class who wants to clear his private debts, fund the educations or lifestyle needs etc are opting this easy credit product. In the current situation, where all banks and NBFCs have stopped their lending products due to higher risk assessment in the pandemic and tightened cash flows in all the business entities, here Gold loan looked as weighted option to satisfy immediate credit need. This being witnessed due to unexpected job loss, lower sales demand from the end user for specific product or services. Hence, to maintain the payment cycles of the employee, suppliers, personal or business overheads gold prices are up since pandemic started. Hence, consumers can avail extra credit due to price and LTV ratio over the same ornaments by default giving push to gold loan demand.
States which are leading
Major states like Delhi, Gujarat, Karnataka, Maharashtra & Andhra Pradesh are leading in the Gold loan services due to increase in demand. Few cities are doing extremely good like Hyderabad, Bengaluru, Chennai , Pune, Delhi, Rajkot & Surat all have been major business contributors due to multiple branches with higher reach in market, inactive and just reopened business and larger population with good span of 10–30 km radius. On the other hand, there are small towns and cities, which are collectively contributing the larger share in the Gold loans distribution due to cyclical demands and rural catchments as per the seasonal demand and crop cycles every year.
Editor : Nikita Pardeshi
