“Gold loan companies scored over banks on higher rate per gram and launching variety of products meeting needs of customers,” said Padma kumar, executive director, Muthoot Finance.
Gold loan companies were enjoying higher loan-to-value (LTV) ratio of up to 90%, which means they were giving up to 90% of the gold value as loan while banks were not even giving more than 75% of the gold value as loan. Concerned about the rapid growth of gold loan companies in recent years, RBI in March 2012, had put a cap of 60% on the LTV ratio for such firms.
“Gold loan is not the core business of banks, it is one of the products offered. While, for gold loan companies it is a core business,” said a senior bank official of public sector bank.
Rural gold financiers plays a crucial role as rural India accounts for about 65% of the total yellow metal stock in the country.
“Gold loan companies were also growing fast because of their reach in rural areas, where banks presence was relatively low,” said Kumar. “Also, banks were offering plain vanilla products while we created a variety to meet the customers’ requirements.”