The festive season is over so is the season for buying gold but, the utility value of gold makes the yellow metal more attractive. The utility value of gold is beyond its ornamental value. In crisis times like these gold helps raise emergency funds. The gold loans have witnessed a rise in demand since the outbreak of COVID-19. The fall in interest rates has made it easier for customers to mortgage their gold holdings.
Punjab & Sind Bank offers the cheapest gold loans at the rate of 7% per annum for a loan amount of Rs. 5 lakh for three years. Bank of India (BOI) is the second bank that offers the lowest interest rate of 7.35%. The largest lender in the country, State Bank of India, is also providing gold loans at a very low-interest rate. SBI offers a loan with an interest rate of 7.5% per annum as of 23rd November.
It was reported earlier that the gold loan market in India would escalate in the current fiscal year. The World Gold Council reported that outstanding organized gold loan was anticipated to grow to Rs 4 lakh crore in this fiscal year from Rs 3.4 lakh crore in FY 2020. The gold loan interest rates of all listed (BSE) public and private sector banks and selected NBFCs were considered for data compilation. Only those banks that publish their data on official websites were considered. Data was retrieved on 19th November 2020. Banks and NBFCs were listed in ascending order based on interest rates offered by them on gold loans. Assuming the processing, and other charges to be zero, EMI calculation was done based on the interest rate for a Rs 5 lakh loan with a term of three years as the basis.
The aggressive players in the NBFCs (Non-Banking Finance Companies) space offer gold loans at higher rates. Among these NBFCs, the cheapest rates are offered by IIFL Finance, starting at 9.24%, followed by Bajaj Finserv (11%), Muthoot Finance (11.9%), and Manappuram Finance (12%). Gold loan NBFCs have gained competitive strength during the pandemic, with a rise in demand for gold loans. The gold holdings that were not reclaimed by consumers were auctioned off by the companies.