If you were counting on your gold jewellery to get you a loan, you may need to either increase the gold you pledge or reduce the quantum of loan. The RBI has asked non-banking financial companies (NBFCs) to reduce the loan amount from up to over 90% of the value of gold to 60%.
Indians privately own 18,000 tonnes of gold currently valued at around R50 trillion and almost 70% is in the form of retail holdings as jewellery and coins. Some find it easier to use their gold to get cash for short- to medium-term liquidity needs. Such people have found it simpler in terms of access and lending ratios to approach NBFCs such as Manappuram Finance and Muthoot Fincorp. Public sector banks including Central Bank of India, Canara Bank and private sector banks including HDFC Bank, ICICI Bank and Kotak Mahindra Bank Ltd give loans against gold.The impact of the change in lending norms for NBFCs will vary — some borrowers will shift to banks or money lenders or others may increase the gold they bring to the NBFCs. "We expect a majority of our customers to stay with us by bringing in more gold for meeting their loan requirements rather than going to money-lenders," says George Muthoot, director, Muthoot Fincorp.
The other factors in your choice of a creditor are interest rates and ease of transaction. You may find NBFCs at par with banks or slightly higher in terms of the interest they charge. The interface is easier with NBFCs with approval and disbursal of loans being faster in most cases, a few minutes compared with a few hours or days with banks. A bank may take your credit report into account before deciding upon the terms of the loan.
Remember, gold loans typically work well for short-term and emergency loans but if you fail to pay back the money, you could lose the gold.