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Why is Competition Increasing For Gold loan NBFCs? Exclusive Research

Life is full of surprises, some good some bad. And no matter how well we anticipate and plan for exigencies, we sometimes fall short. Real Estate, Gold, Stocks, and Mutual Funds are some of the common investment tools for financial planning. However, a financial emergency can derail your planning. In such cases, we utilize our savings; liquidate our assets, or approach friends and family for a loan. We might even have to take out a high-interest loan from a bank to take care of the financial crisis. Assets such as real estate properties, Locked-in Deposits, etc have low liquidity. In the absence of highly liquid investments such as fixed deposits and savings in a bank account, we get panicked to tide over the situation. There’s one asset that Indians have ample of and that is gold. Rather than selling your precious gold articles, gold loan companies today offer many gold loan schemes to secure financing against gold. Most banks and Non-Banking Financial Companies (NBFCs) offer loans against gold.

Gold Loan Companies in India

In India, gold loans can be availed from both private and public sector banks as well as Non-Banking Financial Companies (NBFCs). Over the recent years, many specialized gold loan NBFCs have emerged in India. Names like Muthoot Finance have become synonymous with gold loans. They have been able to retain a strong customer base by offering attractive gold loan interest rates, different loan schemes, and excellent customer service. With the recent pandemic rendering many people jobless and many households without a steady income, the demand for loans against gold surged.

A gold loan is a secured loan that can be availed against gold as collateral. The loan amount depends upon the gold loan rate per gram and gold loan interest rate among other criteria. You can easily make use of the lender’s online gold loan calculator to check your eligibility.

Reason for Increase in Gold Loan Demand

Gold has traditionally been a liquid asset and universally accepted commodity and has a special connection with us Indians. Indians are one of the biggest consumers of gold and we rarely want to sell off our gold to meet immediate financial needs.

Let us find out the reason behind the mushrooming of gold loan companies in India.

  • Lower gold loan interest rates as compared to unsecured loans, minimal documentation, and fast approval.

  • No end-use restriction. Can be used for both personal and business purposes.

  • Provision of both small and large amounts. Muthoot Finance, one of the best gold loan companies, offers loans starting from Rs 1,500.

  • No impact on credit score –There is no impact of your credit score on the gold loan interest rate.

  • Pledged gold is kept in highly-secure vaults.

     

Because of the ease of doing business, many banks and NBFCs have started offering gold loans.

Banks vs Gold Loan NBFCs

Gold loan borrowers never had it so good. Amidst fierce competition among gold loan companies, borrowers have better negotiating power regarding gold loan interest rates and repayment terms, etc. But what has spurred this intense rivalry among banks and NBFCs?

  • Increase in Gold loan Exposure by Banks: To grow their retail books and cash in on the demand for gold loans during the pandemic years, banks have taken a bigger stake in gold loans in India.

  • Change in LTV for Banks: The Reserve Bank of India’s decision to allow banks to lend up to 90% of the value of gold ornaments from 75% also helped banks gain an edge over NBFCs.

  • Aggressive Price Strategies: Banks have aggressively pushed pricing strategies to regain supremacy over gold loan NBFCs. The intense price competition among Non-banking Financial companies also affected the margins in gold loans.

  • Increase in Gold Loan Interest Rates by NBFCs: With decreased margins on gold loans, NBFCs were forced to increase their interest rates to stay afloat. However, banks have left them unchanged and have been able to lure customers away from even the best gold loan companies.

  • Preference of Borrowers: A trend has emerged that shows people seeking low-ticket loans up to Rs 75,000 usually go to NBFCs. However, big-ticket borrowers seem to prefer banks.

  • Aggressive Promotion and Marketing: Since banks usually have high loan value customers, they have been able to bring down operational costs and aggressively push gold loan promotions.

  • Better Customer Service: A robust Customer Relation Management System goes a long way in acquiring and retaining customers. Banks have been working towards raising their service standards on par with those offered by NBFCs.

Conclusion

Both banks and gold loan NBFCs are vying for gold loan customers’ attention. When the competition grows, even the minutest detail could make the borrower choose one over the other. This has forced lenders to offer the best rates and service to their customers and customers are enjoying the best of gold loan offerings.

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