Surveying the Indian Gold Loan Market Cognizant 20-20 Insights Executive Summary Gold has long been

n a valued commodity, particu-larly in India where it is considered auspicious,and has been in use for centuries in the form of jewelry, coins and other assets. Though gold isa highly liquid asset, it wasnt until recently thatconsumers leveraged it effectively to meet theirliquidity needs.Lenders provide loans by securing gold assets ascollateral. Compared with the rest of the world, inIndia the gold loan market is big business. Until adecade back, most of the lending was in the unor-ganized sector through pawnbrokers and moneylenders. However, this scenario changed withthe entrance of organized sector players suchas banks and nonthe market.The organized gold loan market has grown at40% CAGR from 2002 to 2010. NBFCs have beena major driving force behind this growth giventheir extensive network, faster turnaround time,higher loan-to-value ratios and the ability toserve non-bankable customers. Of late, bankshave improved their gold loan product featuresand services. Coupled with comparatively lowerinterest rates and charges, banks stand to gainmarket share at the expense of NBFCs in the nearfuture.With rapid growth, regulatory scrutiny hasincreased on gold loan lending practices. NBFCsare under greater focus as a result of their higherinterest rates and charges, and non-adherence toknow your customer (KYC) regulations. This mayfurther impact the dominance of NBFCs in thegold loan market.At just 1.2% of the total gold stock in the countryat present, gold loans have a huge growthpotential. However, -bution, product and risk mitigation strategies to and sustain-able fashion. Background: Gold and theIndian Society As previously noted, gold has traditionallybeen among the most liquid assets and is anaccepted universal currency. It has traditionallybeen consumed by individuals in the form of jewelry, especially in India where it is consideredauspicious. Gold is presumed to be a safe haven intimes of economic uncertainty, a fact by a 30% increase in the value of gold over thepast year.India is one of the largest markets for gold,accounting for approximately 10% of the totalworld gold stock as of 2010. Rural India accountsfor 65% of this gold stock. Though gold priceshave increased at more than 19% CAGR from2002 to 2010, gold stock in India has grown at22% CAGR during the same period to 18,000tons (Rs. 32,000 billion) as depicted in Figure1. The demand for gold has followed a regionaltrend with southern India accounting for 40%of annual demand, followed by the west (25%),north (20-