Growing Gold Loans
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Transcript of Growing Gold Loans
Growing Gold loans market in India: Will it aid in Financial Inclusion?
Anand DubeBhumika Vagrecha
Swapnil Mehta
Financial Inclusion ???Financial Inclusion is
Ensuring access to financial services
Timely and adequate credit
Vulnerable Groups
Affordable cost
*As defined by C Rangarajan Committee
Why it is needed?India ranked 50th in first-ever Index of
Financial Inclusion
Out of the more than 600,000 rural habitations, only about 32,000 have a commercial bank branch
Just over 40% of the population have bank accounts
Why it is needed?Immense benefits for Government
Route the social welfare schemes directly
Reduce leakage
Reduction in time taken for the impact of benefit to be visible
Substantial savings in transaction cost
How does Gold fit into this?Just some numbers to ponder over
A 27% fall over period of 2 years due to recession
India accounts for 18% of global gold jewelry consumption
Consumer demand trends for individual countries for 2009 show that India is still the top consumer, thanks to a 57 per cent consumption growth
Gold and domestic savingsLack of access to bank
Strong cultural factors at work in India which makes gold not only desirable but also a necessary asset to hold
Traditional store of value
Serves important ceremonial purposes, gold serves as preferred gift
Gold as preserver of value
The debt trap faced by poorBorrowing by rural India as earnings not stable
Absence of banks drives them to moneylenders
High interest rates charged
Cycle of defaults and rollovers at even higher rates
Eventually title to property is transferred to moneylender
Features of Gold LoanSecured Loans
Tenure
No end use restrictions
Loan amount
Interest rate
Repayment
Market risk
Advantages of Gold LoansAvoids debt trap
Simple procedure, fast disbursal
No depreciation of underlying asset
No questions asked
Suited for unorganized sector
Gains for wider economy
Rise and Rise of Gold Loan MarketsWaning resistance among Indian middle and upper
middle class towards gold loans
Rise in price of yellow metal
Disappearance of social stigma attached to gold loans
Lower interest rate – purer the gold, lower the interest rate
Simple process
Loans dispersed for amounts ranging from `10, 000 to `400,000 for NBFC and `25, 000 to `1, 000, 000
Process for obtaining Gold LoanApproach bank/NBFC for loan against gold
Evaluation of purity of gold
Paperwork for mortgage
Disbursal of loan
On repayment of the loan, you get your gold back from the lender.
Gold Loan market – Spectacular growthCAGR of 38% over a period of last 7 years.
Expected to grow annually 35-40% over next 3 years
Gold Loan market has grown from `25 billion in FY-2002 to `250 billion in FY-2009
Loans dispersed at an average interest of 13%, banks charge PLR + 200-400bps
Gold Loan market – Spectacular growth15% Y-0-Y increase in number of people taking
gold loans for Manappuram and 28% increase in dispersals during the same period.
Muthoot has seen 75% growth in number of persons availing gold loans and 81% increase in dispersals
Banks not left far behind
HDFC bank has clocked 60% growth
About Muthoot FinanceStarted in 1887, founded by Mr. Ninan Mathai
Muthoot and Mr. M. George Muthoot in the town of Kozhenchery, Kerala
Grown to become the largest gold company in India
ISO 9001:2000 organization
1700 offices across 23 states in India
Muthoot Finance – Quick Stats Maximum per Gram Rates – `1,600/gram for standard 99.9% purity of gold
0% processing fee & no hidden charges
Rates of Interest starting from 1 % per month.
8 different Schemes suiting all Categories.
Only Identity proof required.
Any Person – No Account required.
Interest only for actual number of days.
100% insured and Gold kept in strong rooms only.
Any time redemption facility without penalty.
Special reward points for M-Power Cardholders.
HDFC Bank – Leading Bank in Gold Loan Market
Avail Loan up to `10, 00,000 & up to 90% of value.
Safety & Security of your Gold Jewellery
Lending rate at 12.5%
ATL - Anytime Liquidity
No EMI, Service only Interest and enjoy the Loan facility
HDFC Bank – Leading Bank in Gold Loan Market
Description of Charges Gold Loan
Loan Processing Charges 1.50% or `750/-, whichever is higher
Valuation Fee Nil
No Due Certificate / No Objection Certificate (NOC) Nil
Duplicate no due certificate / NOC Not Applicable
Solvency Certificate Not Applicable
Charges for late payment of loan amount 2% p.a. as penal interest over and above applicable rate of interest.
Charges for changing from fixed to floating rate of interest Not Applicable
Charges for changing from floating to fixed rate of interest Not Applicable
HDFC Bank – Leading Bank in Gold Loan MarketDescription of Charges Gold Loan
Stamp Duty & other statutory charges As per applicable laws of the state.
Credit assessment charges Nil
Non standard repayment charges Not Applicable
Outstation clearing charges Not Applicable
Cheque swapping charges Not Applicable
Loan cancellation / re-booking charges Not Applicable
Bounce Cheque Charges Not Applicable
Statement Charges (per statement) Not Applicable
Duplicate Repayment Schedule charges Not Applicable
Legal, Repossession & Incidental charges As incurred by the Bank.
Renewal Processing Fees `500/-
Non standard repayment charges Not Applicable
Road Ahead Potential vehicle for social transformation
65% of gold stock with rural household
75% of the gold loan market is still in unorganised sector
Government needs to encourage growth
Separate classification needed Needs to separate it from unscrupulous money-lenders Distinction between NBFC lending and loans against gold
Gold monetisation process will open up the sector and enable the circulation of 18,000 tonnes of gold (worth approximately `30,00,000 crore) back into the economy.
THANK YOU
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