Public sector banks have now started offering competitive rates for gold loans for agricultural purposes with Canara Bank offering loans for a low rate of 5% per annum while other major banks are offering from 6-8 per cent interest rate per annum. New generation banks such as HDFC Bank and ICICI Bank have also come in the forefront promoting gold loans for the common man.One finance company that's the largest in the business is taking the show on the road to the U.K. Muthoot Finance Ltd. is planning to open up three or four branches, hoping to capture business from Asian immigrants.
Bankers say the default rate is much lower for gold loans because Indians do not want to risk losing their family jewelry. And unlike traditional personal loan, no credit checks are needed for gold loans.
According to estimates, the organized gold loan market in India stands at Rs 350-400 billion and has grown at an compound annual growth rate of 40% during 2002-2010 and is expected to grow at an annual rate of 35-40% over the next three years....
So far, the gold loan market has not made any real inroads into North America. That's because people aren't used to the idea, seeing jewelry as largely ornamental rather than as a store of wealth. If they want to turn jewelry into money, they prefer to sell outright. Those who have gold for savings or investment purposes prefer to hang onto it rather than make a loan on it.
As a result, the gold-loan business (such as it is) is still dominated by pawnshops.