As gold rates surge, could gold loans emerge as the preferred option for borrowers?

financialexpress.com:

In recent times, India has witnessed a significant surge in gold rates. As of April 19, 2024, the price of gold stood at ₹6,765 per gram for 22 karat and ₹7,380 per gram for 24 karat. This increase in gold prices has a direct impact on the borrowing habits of individuals, especially in a country like India where gold is not just a precious metal but also a cultural symbol of wealth and security.

The overall gold loan market in India is ~INR 18LCr, with an organized market size that reached USD 80.12 billion in 2023 and is expected to grow at a CAGR of 6.80% from 2023 to 2028. The market is driven by the cultural significance of gold in India, where it is not only a financial asset but also an integral part of various traditions and ceremonies. This cultural affinity has resulted in a vast reserve of gold in Indian households, estimated to be more than 27,000 tonnes, of which approximately 5,300 tonnes is pledged for loans.

“Gold loans offer a quick and convenient way for individuals to secure funds by pledging their gold jewellery or coins. With the current high gold rates, the loan-to-value (LTV) ratio becomes more favourable for borrowers. For instance, major banks and financial institutions in India are offering gold loans with a maximum LTV of up to 75%, as per the RBI standards. The higher the value of gold in the market, the more a borrower can get by keeping their gold as collateral, making gold loans an attractive option for immediate financial needs,” says Allan Fernandes, Head of Product, SahiBandhu Gold Loans, a leading gold loan aggregator platform in India.

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Gold loans typically offer more favourable interest rates than other