In 1991, India faced a severe balance of payments crisis and had to pledge 67 Tonnes of gold to the IMF and the Union Bank of Switzerland to secure a $2.8 billion loan. Fast forward to today, amid the financial strain caused by the COVID-19 lockdown, ordinary Indians follow a similar path by pledging their gold to secure immediate funds. This practice, known as taking a Gold Loan, highlights gold’s enduring role as a reliable asset in economic uncertainty. If you have unused gold, you can leverage it to address your financial needs through a Gold Loan, just as the government did three decades ago.
A Gold Loan is a secured loan in which you pledge your gold holdings (ornaments) as collateral to get cash. One of the advantages of a Gold Loan is that it is easy to avail. For instance, a leading bank like HDFC Bank sanctions Gold Loans within 45 minutes, with minimal documentation and transparent charges.
Many Indians have a strong emotional connection to their gold, making them reluctant to sell their treasured ornaments. As a result, pledging gold to local pawnbrokers and money lenders has been a common practice for decades, especially in rural areas. This tradition persists, with pawnbrokers and money lenders—part of the unorganised sector—currently dominating around 65% of the market. However, this loan securing method carries certain risks, prompting rapid growth in the organised sector as an alternative.
Opting for a Gold Loan from a reputable lender or bank, such as HDFC Bank, is a safer choice. Banks are more trustworthy and adhere to a systematic, documented process, reducing the risk of losing your gold investment to fraudulent activities. According to Care Ratings, by the end of May 2020, banks had accumulated an estimated loan book of ₹2.35 lakh crore, largely due to the surge in Gold Loans during and after the lockdown.
The Reserve Bank of India (RBI) has established several guidelines for Gold Loans, including rules on the loan size relative to the value of the pledged gold. This is known as the Loan-to-Value (LTV) ratio, a metric also used to assess risk in other types of loans, such as home loans. The RBI has set the LTV limit for Gold Loans at 75%. That means that for every ₹100 worth of gold pledged, a borrower can receive up to ₹75. This LTV ratio ensures that the lender is protected, even if the market value of the gold decreases by up to 25%. The lender determines the interest rate on the loan.
Several factors determine the interest rate on Gold Loans, and it varies from lender to lender. For example, HDFC Bank’s interest rates on Gold Loans are quite competitive and offer facilities like Term Loan and Overdraft.
HDFC Bank Gold Loan is available instantly at its branches, with special offers and rates for existing account holders such as the Preferred, Imperia, Classic and women customers.
Gold Loans have emerged as a vital tool for revitalising businesses, MSMEs, and individuals in the economic slowdown. The extended lockdown has led to reduced manufacturing and consumption, widespread job losses, and significant funding challenges. In these circumstances, a Gold Loan offers a practical solution to restart business operations and secure short-term working capital in a post-lockdown environment. Additionally, HDFC Bank’s swift disbursal of Gold Loans at competitive interest rates enhances purchasing power, which can stimulate economic activity and recovery.
Apply for a Gold Loan today and fulfil your financial needs on your own, like business needs, unexpected expenses and bill payments