![Indias Gold Loan Sector Organised Vs Unorganised](https://cgcdn.capriloans.in/wp-content/uploads/2023/02/06173238/Indias-Gold-Loan-Sector-Organised-Vs-Unorganised.jpg)
Today, if faced with a sudden need for money, a person can quite conveniently apply for a gold loan from an NBFC or bank and get the necessary funds disbursed almost immediately. People can even apply for a gold loan online, from the comfort of their homes. The widespread adoption of technology in recent times has played a significant role in the growth of the country’s gold loan market, which saw a 102% rise in loan disbursals between 2019 and 2020. The first quarter of 2022 saw the uptake of gold loans more than double, from Rs 608 crores to Rs 1,333 crores [Source] which can be attributed to greater awareness as well as the digital transformation that industries are undergoing.
The gold loan market in India has been growing gradually over the years along with the demand for gold loans, coming from individuals as well as businesses. This growth can be attributed to the many advantages offered by the banks and NBFC gold loan companies in India, like easy availability, minimal eligibility criteria attractive gold loan interest rates, flexible repayments, and minimal documentation. While banks have been offering gold loans for years now, it was the establishment of the top gold loan companies in India that turned out to be the bigger driver of market growth. In 2022, the asset under management for gold loans by NBFCs and private gold loan companies in India was about 156.8 crore rupees, which forms about 24% of the formal gold loan market [Source]. Despite the huge numbers and the expansive scope, the formal or organised sector is not the only player in the gold loan market, as the unorganised sector still holds a major share today.
●High Rates of Interest: Lack of regulation leaves borrowers susceptible to exploitation. At a bank or a private gold loan company, the interest rate will generally vary from 7 to 25%, whereas local lenders have been known to ask for anything from 25 to 50% as interest.
●Lack of Assurance of Getting Pledged Asset Back: Standard processes, ample grace periods, and transparency at banks and private gold loan companies in India provide the required assurance that the pledged asset will be safe and will be returned to the borrower on complete repayment. However, local money lenders (not all) are much less accountable for the collateral.
●Dubious Gold Valuation: The organised section has genuine valuation procedures for gold. However, as the amount of money you can borrow depends largely on the value of the gold, taking borrowers for a ride by quoting low values is quite common in the unorganised sector.
●No Clarity Regarding LTV: Banks and NBFC gold loan companies in India have fixed LTVs that people can avail against gold. On the other hand, in the unorganised sector, it is more often than not the whim of the lender to decide how much they will offer.
The organised sector mainly includes banks, Non-Banking Financial Companies (NBFCs), and Nidhi companies, where the first two are governed by the Reserve Bank of India (RBI) and the Ministry of Corporate Affairs is responsible for the regulation of Nidhi Companies. The specialised gold loan NBFCs in India have helped significantly in the consolidation of the market, capturing a major chunk of new-to-market customers, as they consistently directed their efforts towards aggressive branding investments, promotions, and expansions. NBFC gold loan companies in India have transformed the market, bringing in several new advantages like faster processing times, accurate valuation, flexibility, varying gold loan formats and repayment options, safekeeping, and auction processes.