Advancing Gold

Having a loan processed from a commercial bank can be both harassing and time consuming. But, banks have now started accepting gold as mortgage for quick and impersonal borrowing by individuals without needing guarantors. Inam ul Haq reports.

Though hoarding of yellow metal is an age-old tradition and matter of prestige for families in Kashmir, a new wave to use it for raising bank loans is proving very popular these days.

Quick and easy for borrowers, gold loan business is picking up fast as it has proved high yielding and safe lending for lenders as well.  “Borrowing against gold is basically hassle free for customers,” said Iftikhar Ahmad, HDFC’s cluster head for Jammu and Kashmir. “You can get a gold loan in half an hour. The documentation is minimum, no guarantors are needed and no need of EMI’s (equated monthly instalments), amount is repaid at the term end of the loan in lump sum.”

Naveed Farouqi, 45, a mid level government employee from downtown, who has third turn from March 2011 to take a gold loan from HDFC’s Maharajgunj branch said that it has become very easy for him to borrow money whenever he needs.

“Earlier I would have to borrow money from relative or friends, which would be quite embarrassing sometimes,” said Farouqi. “But since I got to know about this scheme, it has been very easy to get the money, if I have an urgent requirement. I bring gold of my wife and take the required money within no time.”  Ahmad says it is mostly the small business people, like shop owners and mid level professionals who come to the bank to avail this facility most.

In Kashmir it has been tradition, that parents give their daughters gold ornaments in dowry. It will be an item of personnel use for them and will have an emotional value. Sometimes these gold ornaments will pass on from mother to daughter for generations. And when a family would be in utter need they will sell the ornaments with distress.  But now the gold loan is providing relief for such families, said Faheemda Akhtar, 36, who had come to bank for mortgaging her gold ornaments to help her husband expand his ready-made garments business.

HDFC started lending against gold in the state in December 2010 and is presently No.1 in the state.“We are doing quite good business. Our lending is soaring day by day,” said Ahmad.  HDFC’s lending against gold in Kashmir for the month of February is Rs4.1 crore, an astonishing 260 percent year-on-year increase. The trend is very similar from last three months:December, January and February.HDFC’s yearly gold loan business for 2011 was Rs24 crore and total outstanding until February lending was above Rs30 crore.

Though there are some other players in the market including State Bank of India and some other non-banking financial companies (NBFC) but majority of the gold loan business is presently carried out by the HDFC.

SBI, which also started providing gold loans in 2010, stopped sometime back. Officials in SBI whodoesnot want to be named said, the demand was huge but there was some problem of valuators which prompted bank to stop providing loan for time being.

Though there is issue of valuation at HDFC as well and Farouqi feels he does not get his gold rightly valued but as long as he gets the right amount he needs and gets back his actual gold at the time of repayment he is not bothered about that.

The amount of lone one gets depends on the value of his gold and there are complaints that banks usually under value the gold. But Ahmad of HDFC said that they have government-approved evaluators and all the loans are disbursed according their valuation.

HDFC provides 60 percent to 90 percent loan amount to market value of gold. The interest percentage also varies from 12 to 18 percent depending on the customer relation with the bank and the loan amount against the value of gold.

Right now HDFC provides gold loans at three branches; one in Islamabad and two in Srinagar. To step up lending against yellow metal it plans to expand at six more places within valley in the coming financial year.

Due to huge demand and good margins Jammu and Kashmir Bank and Axis Bank are also proceeding to start lending against gold in Kashmir. Axis Bank will commence soon where at JK Bank  the process is underway.


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