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Submitted to: Submitted By:Business School of Delhi

chayan anand
28/1, Knowledge Park III
Roll no, 100241036
Greater Noida-201306


One of the most pleasant aspects of writing an acknowledgement is the

opportunity to thank all those who have contributed to it. Unfortunately,
the list of expression of gratitude- no matter how extensive is always
incomplete and inadequate. This acknowledgement is no exception.
First and foremost Id like to thanks my advisor, Professor Mr. Vijay Anand
Dubey, Mr. Puneet Kumar, Mr. Prof Rajesh. Mr. Yogendra., Mr. Athar Ali. for
all the stimulating advices and consistently strong support. It has been
great pleasure of mine to work with and learn from these extraordinary
individuals. I wish to express my sincere gratitude to my industry guide
Mrs Rupal thackkar Director, muthoot finance gandhidham.
I owe my deepest thanks to my family- my mother and father
who have always stood by me and guided me through my career, and
have pulled me through against impossible odds at times.

It is impossible to remember all, and I apologize to those I have

inadvertently left out. Lastly, thank you all and thank God!
Shatrughan kumar Singh.


I am SHATRUGHAN KUMAR SINGH hereby state that this final evaluation

report has been submitted to Sunshine Education in partial fulfillment of
the requirements of final project in PGDM program of 2009-11.
The empirical information of this report is based on my experience in
company. Any part of this project has not been reported or copied from
any report and others.


Table of content
2.Historical background of NBFC
3.Factors contributing to the growth of NBFC
4.Classification of NBFC
5.Role of NBFC
6.Function of NBFC
3.Board of Directors
4.How does Gold loan benefit

5.The debt trap faced by Middle-Class & Poors

6.Advantage of Gold Loan
7.Rise of gold loan market
8.Process of obtaining gold loan
9.Gold loan market: Spectacular growth
10.Muthoot Finance- Quick stats
11.What is the process to be followed to obtain a Gold
12.Gold loan become better option than Personal Loan
13.Are Gold Loan safe?
14.Dos and Donts.
We studied about banks, apart from banks the Indian Financial
System has a large number of privately owned, decentralised
and small sized financial institutions known as Non-banking







companies (NBFCs) have contributed to the Indian economic

growth by providing deposit facilities and specialized credit to
certain segments of the society such as unorganized sector and
small borrowers. In the Indian Financial System, the NBFCs play
a very important role in converting services and provide credit to
the unorganized sector and small borrowers.
NBFCs provide financial services like hire-purchase, leasing,
loans, investments, chit-fund companies etc. NBFCs can be
classified into deposit accepting companies and non-deposit

accepting companies. NBFCs are small in size and are owned

privately. The NBFCs have grown rapidly since 1990. They offer
attractive rate of return. They are fund based as well as service
oriented companies. Their main companies are banks and
financial institutions. According to RBI Act 1934, it is compulsory
to register the NBFCs with the Reserve Bank of India.
The NBFCs in advanced countries have grown significantly and
are now coming up in a very large way in developing countries
like Brazil, India, and Malaysia etc. The non-banking companies
when compared with commercial and co-operative banks are a
heterogeneous (varied) group of finance companies. NBFCs are
heterogeneous group of finance companies means all NBFCs
provide different types of financial services.






segment of the financial system. NBFCs are the intermediaries

engaged in the business of accepting deposits and delivering
credit. They play very crucial role in channelizing the scare
financial resources to capital formation.
NBFCs supplement the role of the banking sector in meeting the
increasing financial need of the corporate sector, delivering
credit to the unorganized sector and to small local borrowers.
NBFCs have more flexible structure than banks. As compared to
banks, they can take quick decisions, assume greater risks and
tailor-make their services and charge according to the needs of

the clients.

Their flexible structure helps in broadening the

market by providing the saver and investor a bundle of services

on a competitive basis.
Non Banking Finance Companies (NBFCs) are a constituent of
the institutional structure of the organized financial system in
India. The Financial System of any country consists of financial
Markets, financial intermediation and financial instruments or
financial products.

All these Items facilitate transfer of funds

and are not always mutually exclusive. Inter-relationships

Between these are parts of the system e.g. Financial Institutions
operate in financial markets and are, therefore, a part of such
NBFCs at present providing financial services partly fee based
and partly fund based. Their fee based services include portfolio
management, issue management, loan syndication, merger and
acquisition, credit rating etc. their asset based activities include
venture capital financing, housing finance, equipment leasing,
hire purchase financing factoring etc. In short they are now
providing variety of services. NBFCs differ widely in their
ownership: Some are subsidiaries of large Manufacturers (e.g.,
T.V. Motors T.V. Finances and Services Ltd). Many others are
owned by banks such as ICICI Banks, ICICI Securities Ltd, SBI
Capital Market Ltd, Muthq oot




Services Ltd a key player in Kerala financial services. Other

financial institutions are IFCIs IFCI Financial Services Ltd or IFCI

Custodial Services Ltd .

Non-banking Financial Institutions carry out financing activities
but their resources are not directly obtained from the savers as
debt. Instead, these Institutions mobilize the public savings for
rendering other financial services including investment. All such
Institutions are financial intermediaries and when they lend,
they are known as Non-Banking Financial Intermediaries (NBFIs)
or Investment Institutions.
The term Finance is often understood as being equivalent to
money. However, final exactly is not money; it is the source of
providing funds for a particular activity. The word system, in the
term financial system, implies a set of complex and closely
connected or inter-linked Institutions, agents, practices, markets,
transactions, claims, and liabilities in the Economy. The financial
system is concerned about money, credit and finance. The three
terms are intimately related yet are somewhat different from
each other:

Money refers to the current medium of exchange or means of

Credit or loans is a sum of money to be returned, normally
with interest; it refers to a debt
Finance is monetary resources


ownership funds of the state, company or person.




The Reserve Bank of India Act, 1934 was amended on 1st

December, 1964 by the Reserve Bank Amendment Act, 1963 to
include provisions relating to non-banking institutions receiving
deposits and financial institutions. It was observed that the
existing legislative and regulatory framework required further
refinement and improvement because of the rising number of
defaulting NBFCs and the need for an efficient and quick system
for Redressal of grievances of individual depositors. Given the
need for continued existence and growth of NBFCs, the need to
develop a framework of prudential legislations and a supervisory
system was felt especially
to encourage the growth of healthy NBFCs and weed out the
inefficient ones. With a view to review the existing framework
and address these shortcomings, various committees were
formed and reports were submitted by them.

Some of the

committees and its recommendations are given hereunder:


James Raj Committee (1974)

The James Raj Committee was constituted by the Reserve Bank

of India in 1974. After studying the various money circulation
schemes which were floated in the country during that time and
taking into consideration the impact of such schemes on the
economy, the Committee after extensive research and analysis
had suggested for a ban on Prize chit and other schemes which
were causing a great loss to the economy.

Based on these

suggestions, the Prize Chits and Money Circulation Schemes

(Banning) Act, 1978 was enacted

2. Dr.A.C.Shah Committee (1992):
The Working Group on Financial Companies constituted in April
1992 i.e. the Shah Committee set out the agenda for reforms in











compulsory registration of large sized NBFCs, prescription of

prudential norms for NBFCs on the lines of banks, stipulation of
credit rating for acceptance of public deposits and more
statutory powers to Reserve Bank for better regulation of NBFCs.
3. Khan Committee (1995)
This Group was set up with the objective of designing a
comprehensive and effective supervisory framework for the nonbanking companies segment of the financial system. The
important recommendations of this committee are as follows:








registered NBFCs. The ratings assigned to NBFCs would

primarily be the tool for triggering on-site inspections at

various intervals.
Supervisory attention and focus of the Reserve Bank to be
directed in a comprehensive manner only to those NBFCs
having net owned funds of Rs.100 laths and above.


Supervision over unregistered NBFCs to be exercised

through the off-site surveillance mechanism and their onsite inspection to be conducted selectively as deemed
necessary depending on circumstances.

Need to devise a suitable system for co-coordinating the

on-site inspection

of the NBFCs by the Reserve Bank in

tandem with other regulatory authorities so that they were

subjected to one-shot examination by different regulatory

Some of the non-banking non-financial companies like










investment operations, leasing etc to a great extent. The

committee stressed the need for identifying an appropriate
authority to regulate the activities of these companies,
including plantation and animal husbandry companies not
falling under the regulatory control of Either Department of
Company Affairs or the Reserve Bank, as far as their
mobilization of public deposit was concerned.

Introduction of a system whereby the names of the NBFCs

which had not complied with the regulatory framework /
directions of the Bank or had failed to submit the prescribed
returns consecutively for two years could be published in
regional newspapers.

4. Narasimhan Committee (1991)

This committee was formed to examine all aspects relating to

the structure, organization & functioning of the financial system.
These were the committees which founded non- banking
financial companies.


Non-Banking Financial Companies (NBFCs) play a vital role in the
context of Indian Economy. They are indispensible part in the
Indian financial system because they supplement the activities
of banks in terms of deposit mobilization and lending. They play
a very important role by providing finance to activities which are
not served by the organized banking sector. So, most the
committees, appointed to investigate into the activities, have
recognized their role and have recognized the need for a wellestablished and healthy non-banking financial sector.

Financial Company (NBFC) is

a company

registered under the Companies Act, 1956 and is engaged in









local authority or

acquisition of


other securities of like

marketable nature, leasing, hire-purchase, insurance business,

chit business but does


principal business is that







activity, industrial

activity, sale/purchase/construction of immovable property.

Non-banking institution which is a company and which has its
principal business of receiving deposits under any scheme of









manner is also a non- banking financial company.


Non-Banking Financial Company has been defined as:


A non-banking institution, which is a company and which

has its principal business the receiving of deposits under
any scheme or lending in any manner.

(ii) Such other non-banking institutions, as the bank may with

the previous approval of the central government and by
notification in the official gazette, specify.
NBFCS provide a range of services such as hire purchase
finance, equipment lease finance, loans, and investments.
NBFCS have raised large amount of resources through deposits
from public, shareholders, directors, and other companies and
borrowing by issue of non-convertible debentures, and so on.

Non-banking Financial Institutions carry out financing activities

but their resources are not directly obtained from the savers as
debt. Instead, these Institutions mobilize the public savings for
rendering other financial services including investment. All such
Institutions are financial intermediaries and when they lend,
they are known as Non-Banking Financial Intermediaries (NBFIs)
or Investment Institutions:



Factors contributing to the Growth of NBFCs:

According to A.C. Shah Committee, a number of factors have
contributed to the growth of NBFCs. Comprehensive regulation
of the banking system and absence or relatively lower degree of
regulation over NBFCs has been one of the main reasons for
their growth. During recent years regulation over their activities
has been strengthened, as see a little later.
The merit of non-banking finance companies lies in the higher
level of their customer orientation. They involve lesser pre or
post-sanction requirements, their services are marked with
simplicity and speed and they provide tailor-made services to
their clients. NBFCs cater to the needs of those borrowers who
remain outside the purview of the commercial banks as a result
of the monetary and credit policy of RBI. In addition, marginally

higher rates of interest on deposits offered by NBFCs also attract

a large number of depositors
Regulation of NBFCs
In 1960s, the Reserve Bank made an attempt to regulate NBFCs
by issuing directions to the maximum amount of deposits, the
period of deposits and rate of interest they could offer on the







maintenance of certain percentage of liquid assets, creation of

reserve funds, and transfer thereto every year a certain
percentage of profit, and so on. These directions and norms
were revised and amended from time to time.
In 1997, the RBI Act was amended and the Reserve Bank was
given comprehensive powers to regulate NBFCs. The amended
Act made it mandatory for every NBFC to obtain a certificate of
registration and have minimum net owned funds. Ceilings were
prescribed for acceptance of deposits, capital adequacy, credit
rating and net-owned funds. T he Reserve Bank also developed a
comprehensive system to supervise NBFCs accepting/ holding
public deposits. Directions were also issued to the statutory
auditors to report non-compliance with the RBI Act and
regulations to the RBI, Board of Directors and shareholders of
the NBFCs.


This classification is in addition to the present classification of







Depending on the nature their major activity, the non-banking









categories, they are:


Equipment leasing companies.

Hire-purchase finance companies.
Housing finance-companies.
Investments companies.
Loan companies.
Mutual Fund Benefit Companies.
Chit fund companies.
Residuary companies.

Equipment Leasing Company:


Equipment leasing company means any company which is

carrying on the activity of leasing of equipment, as its main
business, or the financing of such activity.


The leasing business takes place of a contract between the

lessor (lessor means the leasing company) and the lessee
(lessee means a borrower).


Under leasing of equipment business a lessee is allowed to

use particular capital equipment, as a hire, against a
payments of a monthly rent.

(d) Hence, the lessee does not purchase the capital equipment,
but he buys the right to use it.


There are two types of leasing arrangements, they are:


Operating leasing: In operating leasing the producer of

capital equipment offers his product directly to the lessee
on a monthly rent basis. There is no middleman in
operating leasing.


Finance leasing: In finance leasing, the producer of the

capital equipment sells the equipment to the leasing
company, then the leasing company leases it to the final
user of the equipment. Hence, there are three parties in
finance leasing. The leasing company acts as a middleman
between the producer of equipment and the user of

Benefits/Advantages of Leasing:
(1) 100% finance:
They borrower in the equipment can get up to 100% finance
for the use of capital through leasing arrangement in the
sense, that the leasing company provides the equipment
immediately and the borrower need not pay the full amount
at once. Hence, the borrower can use the amount for
fulfilling other needs such as expansion development, etc.
(2) Payment is easier:
Leasing finance is costlier. However, the borrower finds it
convenient (easy) as he has to pay in installments out of
the return from the investment in the equipment. Hence,
the borrower does not feel the burden of payment.

(3) Tax concessions:

The borrower can get tax concessions in case of leasing
equipments. The total amounts of rent paid on leased
equipment are deducted from the gross income. In case of








depreciation are deducted from the taxable income.

Hire-purchase Finance Companies:

Hire purchase finance company means any company which

is carrying on the main business of financing, physical
assets through the system of hire-purchase.

(b) In hire-purchase, the owner of the goods hires them to

another party for a certain period and for a payment of
certain installment until the other party owns it.

The main feature of hire-purchase is that the ownership of

the goods remains with the owner until the last installment
is paid to him. The ownership of goods passes to the user
only after he pays the last installment of goods.

(d) Hire-purchase is needed by farmers, professionals and

transport group people to buy equipment on the basis of
hire purchase.

It is a less risky business because the goods purchased on

hire purchase basis serve as securities till the installment
on the loan is paid.

(f) Generally, automobile industry needs lot hire-purchase

(g) The problem of recovery of loans does not occur in most
cases, as the borrower is able to pay back the loan out of
future earnings through the regular generation of funds out
of the asset purchased.
(h) In India, there are many individuals and partnership firms
doing this business. Even commercial banks, hire-purchase
companies and state financial corporations provide hirepurchase credit.
Housing Finance Companies:

A housing finance company means any company which is

carrying on its main business of financing the construction
or acquisition of houses or development of land for housing

(b) Housing finance companies also accept the deposits and

lend money only for housing purposes.

Even though there is a heavy demand for housing finance,

these companies have not made much progress and as on
31st March, 1990 only 17 such companies here reported to
the RBI.

(d) The ICICI and the Canara Bank took the lead to sponsor
housing finance companies, namely, Housing Development
Corporation Ltd. and the Canfin Homes Ltd.

All the information about the Housing finance companies is

available with the National Housing Bank. Housing finance
companies also have to compulsorily to register themselves

with the Reserve Bank of India.


National Housing bank is the apex institution in the field of

housing. It promotes housing finance institutions, both on
regional and local levels.

Investment Companies:

Investment company means any company which is carrying

on the main business of securities.

(b) Investment companies in India can be broadly classified

into two types:

(1) Holding Companies:

(i) In case of large industrial groups, there are holding
companies which buy shares mainly for the purpose of
taking control over another institution.
(ii)They normally purchase the shares of the institution with
the aim of controlling it rather than purchasing shares of
different companies.

Such companies are set up as private limited

(2) Other Investment Companies:
(i) Investment companies are also known as Investment
(ii)Investment companies collect the deposits from the public

and invest them in securities.


The main aim of investment companies is to protect

small investors by collecting their small savings and

investing than in different securities so that the risk can be

An individual investor cannot do all this on his own, due








companies are formed for collective investing. Companies

are formed for collective investments of money, mainly of
small investors.
(v)Another benefit of an investment company is that it offers
trained, experienced and specialised management of
(vi) It helps the investors to select a financially sound and
liquid security.
Liquid security means a security which can be easily
converted into cash.
(vii)In India investment trusts are very popular. They help in
putting the savings of people into productive investments.
(viii)Some of the investment trusts also do underwriting,






(ix)These investments trusts help in the survival of business
in the economy by keeping the capital market alive, active
and busy.

Loan company:

A loan company means any company whose main business

is to provide finance through loans and advances.

(b) It does not include a hire purchase finance company or an

equipment leasing company or a housing finance company.

Loan company is also known as a Finance Company".

(d) Loan companies have very little capital, so they depend

upon public deposits as their main source of funds. Hence,
they attract deposits by offering high rates of interest.

Normally, the loan companies provide loans to wholesalers,

retailers, small-scale industries, self-employed people, etc.


Most of their loans are given without any security. Hence,

they are risky.

(g) Due to this reason, the loan company charges high rate of
interest on its loans. Loans are generally given for short
period of time but they can be renewed.
Mutual Benefit Financial Company:









(b) A mutual benefit financial company means any company
which is notified under section 620A of the Companies Act,

It is popularly known as "Nidhis".

(d) Usually, it is registered with only very small number of

shares. The value of the shares is often Rs. 1 only


It accepts deposits from its members and lends only to its

members against tangible securities.

Chit-fund Companies:
The chit fund schemes have a long history in the southern states
of India. Rural unorganized chit funds may still be spotted in







companies are now prevalent all over India. The word is Hindi
and refers to a small note or piece of something. The word
passed into the British colonial lexicon and is still used to refer
to a small piece of paper, a child or small girl
How Chit Fund Help?
Chit Funds have the advantage both for serving a need and as
an investment. Money can be readily drawn in an emergency or
could be continued as an investment.
Interest rate is determined by the subscribers themselves, based
on mutual decisions and varies from auction to auction.
The money that you borrow is against your own future
The amount is given on personal sureties too; unlike in banks
and other financial institutions which demand a tangible
Chit funds can be relied upon to satisfy personal needs. Unlike

other financial institutions, you can draw upon your chit fund for
any purpose - marriages, religious functions, medical expenses,
just anything...
Cost of intermediation is the lowest.

Chit funds companies are one of the oldest forms of local

non-banking financial institution in India.

(b) They are also known as "kuries".


These institutions have originated from south India and are

very popular over there.

(d) A chit fund organisation is an organisation of a number of








amounts monthly so that any members who is in need of

funds can draw the amount less expenses for conducting
the chit. It is an organisation run on co-operative basis for
the benefit of the members who contribute money, the
funds are used by them as and when a particular member
needs it.

It helps the persons who save money regularly to invest

their savings with good chances of profit.


Chit funds have many defects as the rate of return given to

each member is not the same.

(g) It differs from person to person, this leads in improper

distribution of gains and losses.
(h) Also, the promoters of these funds do everything for their
own benefit to get maximum income.

Hence, the banking commission has made suggestions to

pass uniform chit funds laws for the whole of India.

Residuary Non-banking Companies:


The term "residue" means a small part of something that

remains. As the meaning of the term shows, a residuary
company is one which does not fall in any of the above

(b) It







schemes similar to recurring deposit schemes of banks.


Deposits are collected from a large number of people by

promising them that their money would be invested in
banks and government securities

(d) The collection of deposits is done at the doorsteps of

depositors through bank staff, who is paid commission.

These companies get the funds at low cost for longer terms,
at they invest them in investments which generates good
amount of return.


Many of these companies operate with very small amount

of capital.

(g) They have some adverse (bad) features, such as:


Some do not submit periodic returns to the regulatory


(iii) Some of them do not appoint banks, etc.


(1) Promoters Utilization of Savings:
Non- Banking Financial Companies play an important role in
promoting the utilization of savings among public. NBFCs are
able to reach certain deposit segments such as unorganized
sector and small borrowers were commercial bank cannot reach.
These companies encourage savings and promote careful
spending of money without much wastage. They offer attractive
schemes to suit needs of various sections of the society. They
also attract idle money by offering attractive rates of interest.
Idle money means the money which public keep aside, but
which is not used. It is surplus money.
(2) Provides easy, timely and unusual credit:
NBFCs provide easy and timely credit to those who need it. The
formalities and procedures in case of NBFCs are also very less.
NBFCs also provides unusual credit means the credit which is
not usually provided by banks such as credit for marriage
expenses, religious functions, etc. The NBFCs are open to all.
Every one whether rich or poor can use them according to their
(3) Financial Supermarket:
NBFCs play an important role of a financial supermarket. NBFCs
create a financial supermarket for customers by offering a
variety of services. Now, NBFCs are providing a variety of

services such as mutual funds, counseling, merchant banking,

etc. apart from their traditional services. Most of the NBFCs
reduce their risks by expanding their range of products and


Investing funds in productive purposes:

NBFCs invest the small savings in productive purposes.

Productive purposes mean they invest the savings of people in
businesses which have the ability to earn good amount of
returns. For example In

case of leasing companies lease

equipment to industrialists, the industrialists can carry on their

production with less capital and the leasing company can also
earn good amount of profit.

Provide Housing Finance:

NBFCs, mainly the Housing Finance companies provide housing

finance on easy term and conditions. They play an important
role in fulfilling the basic human need of housing finance.
Housing Finance is generally needed by middle class and lower
middle class people. Hence, NBFCs are blessing for them.

Provide Investment Advice:

NBFCs, mainly investment companies provide advice relating to

wise investment of funds as well as how to spread the risk by
investing in different securities. They protect the small investors
by investing their funds in different securities. They provide

valuable services to investors by choosing the right kind of

securities which will help them in gaining maximum rate of
returns. Hence, NBFCs plays an important role by providing
sound and wise investment advice.
(7) Increase the Standard of living:
NBFCs play an important role in increasing the standard of
living in India. People with lesser means are not able to take the
benefit of various goods which were once considered as luxury
but now necessity, such as consumer durables like Television,
Refrigerators, Air Conditioners, Kitchen equipments, etc. NBFCs
increase the Standard of living by providing consumer goods on
easy installment basis. NBFCs also facilitate the improvement in
transport facilities through hire- purchase finance, etc. Improved
and increased transport facilities help in movement of goods
from one place to another and availability of goods increase the
standard of living of the society.
(8) Accept Deposits in Various Forms:
NBFCs accept deposits forms convenient to public. Generally,
they receive deposits from public by way of depositor a loaner in









certificates, savings certificates, units, etc. to the public.

(9) Promote Economic Growth:
NBFCs play a very important role in the economic growth of the
country. They increase the rate of growth of the financial market

and provide a wide variety of investors. They work on the

principle of providing a good rate of return on saving, while
reducing the risk to the maximum possible extent. Hence, they
help in the survival of business in the economy by keeping the
capital market active and busy. They also encourage the growth
of well- organized business enterprises by investing their funds
in efficient and financially sound business enterprises only. One
major benefit of NBFCs speculative business means investing in
risky activities. The investing companies are interested in price
stability and hence NBFCs, have a good influence on the stockmarket. NBFCs play a very positive and active role in the
development of our country.

Functions of Non- Banking Financial Companies:

(1) Receiving benefits:
The primary function of nbfcs is receive deposits from the public
in various ways such as issue of debentures, savings certificates,
subscription, unit certification, etc. thus, the deposits of nbfcs
are made up of money received from public by way of deposit or
loan or investment or any other form.
(2) Lending money:

Another important function of nbfcs is lending money to public.

Non- banking financial companies provide financial assistance
(a) Hire purchase finance:
Hire purchase finance is given by nbfcs to help small
important operators, professionals, and middle income
group people to buy the equipment on the basis on Hire
purchase. After the last installment of Hire purchase paid by
the buyer, the ownership of the equipment passes to the
(b) Leasing Finance:
In leasing finance, the borrower of the capital equipment is
allowed to use it, as a hire, against the payment of a
monthly rent. The borrower need not purchase the capital
equipment but he buys the right to use it.
(c) Housing Finance:
NBFCs provide housing finance to the public, they finance
for construction of houses, development of plots, land, etc.

(d) Other types of finance provided by NBFCs include:

Consumption finance, finance for religious ceremonies,
marriages, social activities, paying off old debts, etc. NBFCs

provide easy and timely finance and generally those

customers which are not able to get finance by banks
approach these companies.
(e) Investment of surplus money:
NBFCs invest their surplus money in various profitable
Commercial Bank versus



Financial Companies
While commercial banks and non-banking financial companies
are both financial intermediaries (middleman) receiving deposits
from public and lending them. Commercial bank is called as Big
brother while the NBFC is called as the Small brother. But
there are some important differences between both of them,
they are as follows:


Commercial Banks.

Non Bank Financial


Issue of cheques:
In case of commercial banks,

In case of NBFCs there is no

a cheque can be issued

facility to issue cheques

against bank deposits.

Rate of interest:

against bank deposits.

Commercial bank offer lesser NBFCs offer higher rate of

rate of interest on deposits

interest on deposits and

and charge less rate of

charge higher rate of

interest on loans as

interest on loans as

compared to NBFCs.

compared to Commercial

Facilities provided by

NBFCs are not given such

Commercial banks can enjoy


the benefit of certain

facilities like deposit
insurance cover facilities,
refinancing facilities, etc.

Law which governs them:

NBFCs are regulated by
Commercial banks are

different regulation such as

regulated by Banking

SEBI, Companies Act,

Regulation Act 1949 and RBI.

National Housing Bank, Unit

Fund Act and RBI.

Types of assets:
NBFCs specialize in one
commercial banks hold a

types of asset. For e.g.: Hire

variety of assets in the

purchase companies

form of loans, cash credit, bill

specialize in consumer loans

of exchange, overdraft etc.

while Housing Finance

Companies specialize in

housing finance only.

About Us
We are the largest gold financing company in India in terms of
loan portfolio. (Source: IMaCS Industry Report (2010 Update). We
provide personal and business loans secured by gold jewellery,
or Gold Loans. We are a Systemically Important Non-deposit
taking NBFC headquartered in the southern Indian state of
Kerala. Our promoters are Mr.M.G.George Muthoot , Mr.George
Thomas Muthoot , Mr. George Jacob Muthoot and Mr.George
Alexander Muthoot. Our operating history has evolved over a
period of 70 years since M George Muthoot (the father of our
Promoters) founded a gold loan business in 1939 under the
heritage of a trading business established by his father, Ninan
Mathai Muthoot, in 1887. As of March 31, 2010 our branch
network was the largest among gold loan NBFCs in India(Source:
IMaCS Industry Report (2010 Update). Our branch network as of
August 31, 2010 was 1,921 branches
The Muthoot Group is an 123-year-old business house based in
interestsin Financial
Services, InformationTechnology,Media, Healthcare, Education, P
owergeneration, Infrastructure, Plantations, Precious
Metals and Hospitality. The Muthoot Group operates in 21 states
in India, and has a customer base of over 25 million. It is wholly
owned and managed by the Muthoot Family.

The Group takes its name from the Muthoot Family based in
Kerala. The Company was set up by Muthoot Ninan Mathai in
1887 at Kozhencherry, a small town in the erstwhile Kingdom of
Travancore (Kerala). It was then later taken over by his son M
George Muthoot who incorporated the Finance division of the
group which was till then primarily involved in wholesale of
grains. The company is now managed by the third and fourth
generation of its family members.

We are the largest gold financing company in India in terms of
loan portfolio. (Source: IMaCS Industry Report (2010 Update). We
provide personal and business loans secured by gold jewellery,
or Gold Loans. We are a Systemically Important Non-deposit
taking NBFC headquartered in the southern Indian state of
Kerala. Our promoters are Mr.M.G.George Muthoot , Mr.George
Thomas Muthoot , Mr. George Jacob Muthoot and Mr.George
Alexander Muthoot. Our operating history has evolved over a
period of 70 years since M George Muthoot (the father of our
Promoters) founded a gold loan business in 1939 under the
heritage of a trading business established by his father, Ninan
Mathai Muthoot, in 1887. As of March 31, 2010 our branch
network was the largest among gold loan NBFCs in India(Source:
IMaCS Industry Report (2010 Update). Our branch network as of
August 31, 2010 was 1,921 branches.


Private Conglomerate


Hotels & Resorts
Information technology
Broadcast Media
Energy & Power Generation


1887 by Muthoot Ninan Mathai

Headquar Kochi, India


M G George Muthoot (Chairman)

George Alexander Muthoot (MD)
George Jacob Muthoot (Whole-Time
Director Director)
George Thomas Muthoot (Whole-Time

Employee 10,000 (2009)


Board of Directors
M.G. George Muthoot, Chairman is a graduate in engineering
from Manipal University, and is a businessman by profession. He
is the National Executive Committee Member of the Federation of
Indian Chamber of Commerce and Industry (FICCI) and the
current Chairman of FICCI Kerala State Council. He was conferred
the Mahatma Gandhi National Award for social service for the
year 2001 by the Mahatma Gandhi National Foundation. He is an
active member of various social organisations including the Delhi
Malayalee Association, Kerala Club, Rotary Club, National Sports
Club and has been chosen for several awards by the Rotary
International and the Ys Mens International for community
development and social service. He has been the member of the
Managing Committee of Malankara Orthodox Syrian Church for
over 31 years and is presently the lay trustee of the Malankara
Orthodox Syrian Church and a member of the working committee
of the Indian Orthodox Church. Recently, he was conferred the HH
Baselios Mathew I Award by Catholicate of the Syrian Orthodox
Church Mathews the First Foundation for the year 2008 for his
services to the Church.

George Thomas Muthoot, Whole Time Director is a

businessman by profession. He has over 30 years of experience
in managing businesses operating in the field of financial
George Jacob Muthoot, Whole Time Director has a degree
in civil engineering from Manipal University and is a
businessman by profession. He is a member of the Trivandrum
Management Association, the Confederation of Real Estate
Developers Association of India (Trivandrum) and the Trivandrum
Agenda Task Force. He is also a member of the Rotary Club,
Trivandrum (South), governing body member of the Charitable
and Educational Society of Trivandrum Orthodox Diocese, Ulloor,
Trivandrum, Finance Committee Member, Mar Diocese College of

Pharmacy, Althara, Trivandrum and Mar Gregorious Orthodox

Christian Mercy Fellowship, Trivandrum
George Alexander Muthoot, Managing Director is a
chartered accountant who qualified with a first rank in Kerala
and ranked 20th overall in India, in 1978. He has a bachelor
degree in Commerce from Kerala University where he was a rank
holder and gold medallist. He was also awarded the Times of
India group Business Excellence Award in customised Financial
Services in March 2009. He served as the Chairman of the Kerala
Non banking Finance Companies Welfare Association from 2004
to 2007 and is currently its Vice Chairman. He is also the
Managing Committee Member of the Equipment Leasing
Association, Chennai. He is the founder member for The Indus
Entrepreneurs International, Kochi Chapter and is now a member
of the Core Committee of The Indus Entrepreneurs International
Kochi Chapter.
Justice K. John Mathew (retired), Independent Director is
a graduate in law from the Government Law College, Ernakulam
and is a retired judge of the High Court of Kerala. After
retirement, he was appointed as a one man commission to
investigate into the financial and administrative irregularities in
the Aligarh Muslim University. He has served as the Chairman of
the Cochin Stock Exchange and was a SEBI nominee director of
the Cochin Stock Exchange from 2002 to 2007. He is currently
the President of the Peoples Council for Social Justice, Kerala.
P. George Varghese, Independent Director is a graduate in
mechanical engineering from Kerala University and holds a
masters degree in business administration from Cochin
University of Science and Technology. He is the managing
director of FCI OEN Connectors Limited and FCI Technology
Services Limited. He is a trustee of the IMA Blood Bank, Kochi
and is a member of the governing council of DC School of
Management and Technology. He has served as the vicepresident of the Kerala Management Association from 2006 to
2007 and has been on the managing committee of the Indo
American Chamber of Commerce from 1992 to 1999. He is also
a member of the CII-Kerala.

John K Paul, Independent Director is a graduate in

engineering from the Regional Engineering College, Kozhikode
and a businessman by profession. He is a director of Popular
Automobiles Limited, Popular Vehicles & Services Limited, the
first Maruti dealer in Kerala and of Popular Mega Motors (India)
Limited., the dealer for TATA Commercial Vehicles. He is trustee
of the Kuttukaran Institute for HRD, which is a leading institution
offering professional courses. He was the president of the Kerala
Chamber of Commerce and Industry from 2005 to2006. He was
also the president of both the Kerala Hockey Association from
2005 onwards and the Ernakulam District Hockey Association
from 2004 onwards.

Muthoot Finance a subsidiary of Muthoot Group was established
in 1939, and is primarily involved in the Financial sector of the
country. Muthoot Finance falls under the category of Non
Banking Financial Company (NBFCs) of the RBI guidelines. The
company has more than 2038 branches spread across 23 states
of the country and is the largest gold loan company in India..
Muthoot Finance, according to the IMaCS Research & Analytics
Industry Reports [Gold Loans Market in India, 2009 (IMaCS
Industry Report 2009) and the 2010 update to the IMaCS
IndustryReport 2009 (IMaCS Industry Report (2010 Update))],
is the largest Gold Loan NBFC and has the largest network of
branches for a Gold Loan NBFC in India.. Muthoot Finance is also
the highest credit rated Gold Loan company in India, with a
credit rating of AA- (CRISIL) for its Long Term Debts and P1+
(CRISIL) & A1+ (ICRA) for its Short Term Debt Instruments.
Muthoot Gold Power is the lifestyle product of Muthoot Finance
aimed at mobilizing the Household gold in India which is
estimated to be more than 15000 tonnes. Muthoot Finance
according to its company website has "the largest gold loan
portfolio in the country". Muthoot also provides various financial
services such as Insurance distribution, Wealth Management,

Foreign Exchange, Money Transfer and Vehicle & Asset Finance.

Muthoot Finance was selected as one of the Top 10 Finance
companies to work for in India by[7] Muthoot Finance
privately placed 4% of its paid up capital to Private Equity
players - Barings India and Matrix Partners India for Rs.1.57
billion, hence valuing the earlier privately held company at over
$1 billion.

Emsyne, the information technology wing of the group develops
products for the service, education and healthcare industry.
Emsyne offers on site and offshore services, whether projectbased outsourcing / assignments, or based on time and
materials. The Core Products of Emsyne are Edge - Educational
Institutions Management System Finex - Innovative Banking
Automation System

Muthoot Securities offers broking services in cash and
derivatives segments at the National Stock Exchange and
Bombay Stock Exchange. It has a network of more than 100
branches. Muthoot Securities launched its portfolio management
services on 20 August 2009.
Chennai Live 104.8 is India's first talk radio FM station. The
station would be focusing on knowledge centric and local
content and will be targeting the information and entertainment
needs of Chennai's intelligent community.

The Group operates several Diagnostic &
throughout Kerala and 2 multi-specialty
Kozhencherry and Pathanamthitta.

Scan centers
hospitals in


Muthoot Hotels operates a 4 star resort in Thekkady (Kerala) and
also operates 12 houseboats in the backwaters of Kerala under
Kaapi Club is a chain of South Indian coffee outlets managed by
Muthoot Hotels. Muthoot Hotels is in the process of constructing
a 5 star luxury hotel in the city of Kochi and 5 star beach resort
in Mararikulam.
The projects of Muthoot Builders are primarily situated in central
and south Kerala, Muthoot has a track record of more than 30
completed projects including commercial and residential spaces.
Muthoot has interests in Power Generation through windmill
farms in the state of Tamil Nadu. The group also manages a
school in New Delhi and 2 Nursing Colleges in Kerala. In the year
2008 the group re-entered the plantation business, the group
has acquired 1000 acres of land in Sawantvadi, Maharashtra as
a pilot planting of rubber.
Muthoot M George Charity Foundation Set up in memory of
the Late M. George Muthoot, the Foundation has been extending
financial aid for its employees as part of the Staff Welfare

measures. Every branch of The Muthoot Group is actively

involved in Community Development and Social Welfare. The
Muthoot Foundation frequently grants medical and financial aid
to deserving individuals through its welfare programs.
Community support is a corporate responsibility. The Muthoot
Group maintains its position as a valued and responsible
corporate citizen by enhancing the quality of life in the
communities where they do business. It is very important for a
corporate to support the community in which it operates. The
Muthoot M. George Charitable Foundation is approached by
numerous organizations and individuals requesting financial and
Centers at
Pathanamthitta are super specialty hospitals set up in the rural
areas of Kozhencherry and Pathanamthitta. They are both
organizations established in 1989.
The Periyar Foundation set up by Muthoot Hotels is based in
the town of Thekkady, near the Periyar National Park has
undertaken several projects for the conservation of the national
park including 'vasantha sena' and a research study along with
the National Institute of Advance Studies for the conservation of
'Nocturnal Flying Squirrels'.


The financial services sector contributed 15 per cent to India's
GDP in FY09, and is the second-largest component after trade,
hotels, transport and communication all combined together, as
per the Banking & Finance Journal, released by an industry body
in August 2010.

Share of Financial services, banking, insurance and real estate

sectors is expected to enhance by 9.7 per cent for the year
2009-10 to 17.2 per cent of GDP (at factor cost).
Data sourced from SEBI shows that the number of registered FIIs
stood at 1,738 and number of registered sub-accounts rose to
5,592 as of November 10, 2010.
Overseas funds infused into Indian capital market in 2010 stood
at US$ 39 billion. According to data released by Securities and
Exchange Board of India (SEBI), stocks and debt securities over
worth US$ 17.28 billion were purchased by the foreign
institutional investors (FIIs) from the Indian capital market in
January 2011.
According to data available with SEBI, FIIs have made
investments worth US$ 4.11 billion in equities and invested US$
667.71 million into the debt market.
The average assets under management of the mutual fund
industry stood at US$ 147.99 billion for the quarter ended
December 2010, according to the data released by Association
of Mutual Funds in India (AMFI).
As on January 21, 2011, India's foreign exchange reserves
totaled US$ 299.39 billion, according to the Reserve Bank of
India's (RBI) Weekly Statistical Supplement.
According to Venture Intelligence, a research firm, private equity
firms invested US$ 7,974 million over 325 deals in India during
2010, as against US$ 4,068 million (over 290 deals) in 2009. The
largest investment reported during the year was the US$ 425
million raised by power generation firm Asian Genco from
investors including General Atlantic, Goldman Sachs, Morgan
Stanley, Everstone and Norwest.

According to a global consultancy firm Ernst & Young (E&Y),

sectors such as power and transportation, consumer and
branded products, infrastructure ancillaries, education and
financial services, and healthcare are likely to witness increased
PE activity in 2011.
India Inc announced merger and acquisition (M&A) deals worth a
record US$ 55 billion in 2010, including a record number of
billion-dollar transactions.
The number of mergers and acquisitions (M&A), private equity
(PE) transactions and Qualified Institutional Placements (QIP)
increased close to 40 per cent to US$ 3.23 billion in November
2010. Besides, there have been US$ 9 billion plus deals in 2010,
the highest seen in any year.
Fund-raising activity gained pace by almost 65 per cent in 2010
as compared to 2009. In real terms, 27 funds were able to raise
US$ 13 billion as PE as against US$ 8 billion by 22 funds in 2009.
There has also been a more than 80 per cent growth in PE and
VC investments in India: 2010 witnessed 348 deals worth $8
billion, against 317 deals worth $4.4 billion in 2009, according to
VCCedge data.
Stock markets
Market capitalisation of India as a proportion of world market
cap has risen to a record high. According to data sourced from
Bloomberg, the country's market capitalisation as a proportion
of the world market cap is currently 3.34 per cent. India's
current market-cap is US$ 1.55 trillion as compared with world
market-cap of US$ 46.5 trillion. This is higher than 3.12 per cent
share India enjoyed at the market peak of January 2008.

As analyzed by Venture Intelligence, private equity firms

obtained exit routes for their investments in a record 121
companies during 2010, including 24 via IPOs. (2009 had
witnessed 66 liquidity events including 7 via IPOs). PE-backed
companies raised about US$ 2.20 billion via IPOs during 2010.


The Indian Life Insurance industry is one on the strongest

growing sectors in the country. Currently a US$ 41-billion
industry, India is the fifth largest life insurance market and
growing at a rapid pace of 32-34 per cent annually. Currently,
there are 22 life insurance companies operating in India,
according to the Life Insurance Council (LIC).
According to data released by the Insurance Regulatory and
Development Authority (IRDA), insurance companies garnered
US$ 11.73 billion in new business premium during April-August
2010, against US$ 6.90 billion in the corresponding period last
Further, according to IRDA, in October 2010, life insurance
companies collected first year premium worth US$ 542.19
million (individual single premium). For the period up to October
2010, total premium collected by life insurance companies was
US$ 4.66 billion, as compared to US$ 2.39 billion collected in the
same period of 2009 (individual single premium).
The life insurance industry is expected to cross the US$ 66.8
billion total premium income mark in 2010-11. "This year, we are

expecting a growth of 18 per cent in total premium income. If

achieved, it is expected to cross the US$ 64.4 billion mark," said
SB Mathur, Secretary General, Life Insurance Council. Total
premium income, at US$ 56.04 billion, rose 18 per cent during
2009-10, against US$ 47.6 billion in the previous year.
Banking services
Significantly, on a year-on-year basis, bank credit grew by 24.4
per cent in 2010 as against RBIs projections of 20 per cent for
the entire fiscal 2010-11.

Branches in India (2749)

pradesh (334)

Bihar (5)



Daman (1)

Delhi (180)

Goa (4)

Gujarat (106)

Haryana (86)

pradesh (3)

Jammu &
kashmir (10)

Jharkhand (3)


Kerala (624)

pradesh (34)


Orissa (14)


Punjab (105)

Rajasthan (70)


Financial Inclusion
Financial Inclusion is
(A) Ensuring access to financial
services (B) Timely and adequate credit (C) Vulnerable
groups (D) Affordable Cost.
India is ranked 50th in the first ever index of financial
Out of the more than 6,00,000 rural habitations, only about
32,000 have a commercial branch.
Just over 40% of the population have bank accounts.
Immense benefits for government (A) Route the social
welfare schemes directly (B) Reduce leakage (C) Reduction
in time taken for the impact of benefit to be visible (D)
Substantial savings in transaction cost.
How does Gold Benefit this?
A 27% fall over the period of 2 years due to recession.
India accounts for 18% of the global gold jewelry
Consumers demand trends for individual countries for 2009
show that India is still the top consumer, thanks to a 57%
consumption growth.
The Debt Trap faced by Middle-Class & Poors.

Borrowing by rural India as earnings not stable.

Absence of Banks drives them to Moneylenders.
High Interest Charged.
Cycle of defaults and rollovers at even higher rates.
Eventually title to the property is transferred

Advantages of Gold Loans


Avoid debt trap.

Simple procedure, fast disbursal.
No depreciation of underlying asset.
No questions asked.
Suited for unorganised sector.
Gains for wider economy.

Rise of Gold Loan Markets.

Wanning resistance among Indian midlle and upper middle
class towards gold loans.
Rise in price of yellow metal.
Disappearance of social stigma attached to gold loans.
Lower interest rate- purer the gold, lower the interest rate.
Simple process.
Loans dispersed for amounts ranging from 10,000 to
4,00,000 for NBFC and 25,000 to 1,00,000.

Process for Obtaining Gold Loan.

Approach Bank/NBFC for Loan Against Gold.

Evaluation of purity of Gold.
Paperwork for Mortgage
Disbursal of loan
On repayment of the Loan, you get your gold back from
the Lender.

Gold loan market- Spectacular Growth.

CAGR of 38% over a period of last 7 years.

Expected to grow annually 35-40% over next 3 years.
Gold loan market has grown from 25 billion in FY-2002 to
250 billion in FY-2009.
Loans dispersed at an average interest of 13%, banks
charge PLR+200-400bps.
15% Y-o-Y increase in number of people taking gold loans
and 28% increase in dispersals during the same period.
Muthoot has seen 75% growth in number of persons
availing gold loans and 81% increase in dispersals.
HDFC bank has clocked 60% growth.
Muthoot Finance Quick Stats.
Maximum per gram rates- 1600/gram for standard 99.9%
purity of gold.
0% processing fee and no hidden cost.
Rates of interest starting from 1% per month.
8 different schemes suiting all categories.
Only identity proof required.
Any person- Number of account required.
Interest only for actual number of days.
100% insured and gold kept in strong rooms only.
Anytime redemption facility without penalty.
Special rewards points for M-Power card holders.
Road Ahead

Potential vechile for social transformation.

65% of gold stock with rural household.
75% of the gold loan market is still in unorganised sector.
Government needs to encourage growth.
Separate classification needed, needed to separate it from
unscrupulous money-lenders, distinction between NBFC
lending and loan against gold.

Gold monetisation process will open up the sector and

enable the circulation of 18,000 tonnes of gold (worth
approx 30,00,000 crore) back into the economy.

Gold Loans- Personal loan against gold: A financing

option for short term needs
For Indians, gold is considered as an essential investment from a
cultural, emotional and safety perspective. One bought, is a
dead investment. It tends to lie in the locker not earning you any
money. Why not make use of it in your time of need? You can
monetise this idle asset to help you tide over your financial
need. So if ever you find yourself in need of money, consider
gold loans as an option. Gold loans also know as gold deposits
are loans given by banks/ NBFCs by taking gold as a security.
Gold loans are not new to the Indian market. It existed but in the
unorganised sector where money lenders used gold as a security
for providing loans. Now banks have entered this space in a big
way because the market is very large considering the fact that
most Indians tend to have sufficient investment in gold. More
importantly, with more and more women working in the family,
people have become broadminded. So the social stigma that

was once attached to taking a loan on gold is gradually being

Off late, this product has become popular because of the
substantial rise in gold prices. The quantum of loan that one can
get by giving gold as security has increased tremendously
making it an attractive loan proposition.

What is the process to be followed to obtain a gold loan?

You offer your jewellery to the lender who can be a bank or an
NBFC. The lender will evaluate the purity of the jewellery. The
charge for evaluation is generally borne by the borrower. Once
the evaluation is done, the paper work for the mortgage is done.
Banks will ask you to produce personal documents such as Pan
Card, address proof among other things. The lender will give you
a loan which in most cases can be up to a maximum of 80% of
the value of the jewellery. After having repaid the loan, you get
your gold back from the lender.

Secured Loan: Gold loan is essentially borrowings against the
security i.e. gold. Thus this loan should be taken only if youre
absolutely sure that you will be able to repay the loan else you
may end up losing your gold.
Tenure: Gold loans are typically for duration of 3 to 12 months.
They are thus best used to fund short term monetary
No end use restrictions: The loan can be taken for any
purpose so long as the money is not being used for speculative

Loan amount: In most cases, the maximum loan value is not

more than 80% of the value of gold. Most banks deal in
relatively higher loan amounts. NBFCs on the other hand, deal in
small value loans
Interest Rate: The interest rate charged by banks can be in the
range of 11.5% and 15%. Banks usually charge a processing fee
while NBFCs may not charge the same. The rate of interest
charged by NBFCs is much higher as compared to banks.
Repayment: The loan can be foreclosed at any time without
any penalty. In case of irregular payment of EMIs, a penal
interest of up to 2% is charged by banks.
Market risk: The lender retains the exposure to the market risk
arising from movements in the market price of gold

Quick processing: Gold loans require minimum documentation
and hence it can be resorted to in times of urgent need. Banks
maintain that it takes a few hours to get a gold loan and in
COMPANY) it takes only a few minutes.
More attractive than a personal loan: The rate of interest
charged on gold loans tends to be much lower than that of a
personal loan. Therefore, it may be worthwhile putting you asset
to work and thus reducing your cost of loan.
Emotional attachment will ensure timely payment: Most
families have an emotional attachment to gold and that will
make you morally responsible to repay the loan in time so that
you can get back the gold that you had placed as a security
Cash flow management: In a typical loan against gold
transaction, only interest needs to be paid during the tenure of
the loan and the principal amount has to be repaid at the end of

the tenure. This allows customers the borrower to manage cash

flows better.
Gold loan become better option than personal loan
As a substitute of taking on a personal loan at exorbitant rates of
interest, its worthwhile to check out loansagainst gold being
offered by banks. Loans with gold as security comeat a very low
interest rate of around 12 %, compared with upwards of 17% on
unsecured personal loans. Several banks have already begun to
lend against gold.
Its also a period when the gold loans business is expected to be
a focus area for several banks because itoffers lenders an
opportunity to tap the individual loans segmentwithout getting
involved in risky unsecured personal loans.
Leading Gold Loan NBFC , Manappuram Finance, is planning to
aggressively grow its gold loan portfolio with easyprocessing
methods and competitive interest rates. Manappuram s gold
loanportfolio has been growing at over 60 % for the past two
years with twoproducts -- the gold overdraft facility offered at 14
to 15 % and goldloans at 12.5 %.
The most active players lending against gold are nonbankingfinancial companies such as Manappuram Finance which
lends at 12% and offers a loan as high as Rs 1,725 per gm,
which is very close tothe market price.
With the opportunity being vast, we will continue to look to
growthis portfolio. We plan to increase the number of branches
offeringgold loans from 1150 to 2500 over the course of next
year, said, by one of the top official.
The World Gold Council estimates that the gold monetisation
processwill open up the sector and enable the circulation of
18,000 tonnes ofgold (worth approximately Rs 30,00,000 crore)
back into the economy

Ajay Mitra, managing director India, West Asia and Turkey,

WorldGold Council, said, Acceptance of gold for loans by banks
andfinancial institutions is an important development that will
infusegreater confidence in gold as an asset class.

Are Gold Loans Safe?

Source: Economic Times- 14th November, 2010

The glitter of gold loans
You may ignore the sparkle of the yellow metal itself, but it is
really difficult to overlook the glitter of gold loans these days. In
fact, spurred by soaring prices, rise in consumerism and, more
importantly, changing social norms, gold loans have not only
seen an unprecedented rise in recent times, but are also all set
to shine more brightly in future.
Sample this: The organized gold loan market in India, pegged at
25,000 crore in FY 2009, grew at a compounded annual growth
rate (CAGR) of around 38% between FY 2002 and FY 2009 and is
expected to grow at an annual rate of 35-40 % over the next
three years to reach a portfolio size of 50,000-53 ,000 crore by
FY11. This study by ICRA Management Consulting Services alone
is enough to set the alarm bells ringing for those in the pawn
broking business. The reasons for this kind of growth in gold
loans, however, are not far to seek.
Low interest rates
Firstly, it is convenience. The sheer convenience of a loan
proposition against such a liquid asset suits both the lender and
the borrower. In some cases, it may be the last resort for the
client, but it is a convenient one. Lenders find it a timeless, good

business model, while clients, who need money quickly, find this
the best way to raise funds, says Jayant Manglik, president of
Religare Commodities.
Secondly, it is low interest rates. In fact, borrowing against
gold is fast emerging as the most preferred financing option as
the interest rate charged by institutions are less compared to
other retail loans such as personal loans. For instance, the rate
of interest on these loans is between 10% and 24% per annum.
In comparison, personal loans charge 16-26 % per annum,
depending on your credit profile.
Loan against gold better than a personal loan

Therefore, it is better to take a loan against gold than a

personal loan as the rates will be lowersince this type of loan
is secured. Another good reason to take a loan against gold is
that most banks/NBFCs allow you to pay only the interest on the
loan monthly and the principal payment at the end of the term
and not as an EMI; which works better from an interest
perspective, says Lovaii Navlakhi, managing director & chief
financial planner, International Money Matters.
Besides, you can decide the approximate loan amount based
upon your gold value, i.e. no income proof is required unlike in a
personal loan where the loan amount is decided based on your
income proofs provided. The processing of the loan is also much
faster because of easy documentation. Banks such as ICICI Bank
and HDFC Bank may ask for your ID and other personal details
which can take up to an hour while non-banking finance
companies such as Muthoot Finance or Manappuram Finance
claim to process the loan in a few minutes.
Pledging gold is no longer considered a taboo
Also, instead of keeping gold idle in a locker at home or in a
banks locker, it is a good idea to borrow against it at lower
rates in comparison to other retail loans. Moreover, lenders also

prefer this route of financing as the default rate is negligible. In

general, the loans may be provided for 70-85 % of the value of
gold, says Amar Ranu, senior manager, Motilal Oswal
Added to these is the fact that pledging gold is no longer
considered a taboo and disgraceful in Indian society. This
explains why gold loans are now widely recognized as
acceptable means of raising funds for meeting urgent
requirements by all segments of society. Some people also go
for it because they find it more private than going to a
neighborhood moneylender. Also, with gold prices soaring, even
banks have begun to push customers toward gold loans. The
transactions have become more popular as small personal
lending dries up because of rising defaults on risky loans.

Tread with caution while opting for a gold loan

This is, however, not to suggest that you should throw all
caution to the wind while opting for a gold loan, as the chances
of losing your family heirlooms are higher in case of a dispute or
default. That is because gold loans are secured loans. So if you
fail to repay the loan within the stipulated loan period, a higher
interest will be charged and the gold may even be auctioned off.
Typically jewellery is an item of personal use and its emotional
value is sometime far higher than its market value. If for any
reason you are unable to pay pack the loan, the lender can sell
your jewellery in the market to recover its dues after which you
can never get your jewellery back, says Harsh Roongta, CEO,
Apnapaisa .com, a price & features comparison engine for loans,
insurance and investments.
Gold loans are good in a rising market

This goes without saying, therefore, if you need money quickly

and dont have any other assets to pledge, this is a useful
avenue. But if you dont have the confidence of returning the
principal and interest in time, then you should avoid taking a
loan against gold.
Also, gold loans are good in a rising market. However, if gold
prices correct drastically during the loan tenure, banks may ask
for the payment of the difference.
Thus, even availing a gold loan is not without risks, which
explains why you need to mull the pros and cons of pledging the
yellow metal carefully and also look for some other options
available before going for a gold loan. It also makes sense to
consider in what circumstances you should go for it and when to
avoid it.

Look for some other options!

In normal circumstances, for instance, if your credit history is
bad or completely beyond repairable inner future, you can think
of availing a loan against gold, that too at a discounted rate in
comparison to personal loans. Customers with low or
understated income can also avail a loan against gold.
However, if you take a loan against gold for personal expenses
such as a 3D TV, car or foreign trips, then it is quite possible that
you may default on the loan. Also, a gold loan is not
recommended for people with low financial IQ because there is a
higher risk of default and your assets may be auctioned
Normally, one does not plan to pledge ones jewellery to take a
loan. Obviously, if you possess the jewellery for a specific

purposeto gift to your daughter, for exampleyou are unlikely

to sell it. Economically, however, if the expected appreciation in
value is greater than the cost of the loan, it is better to take a
loan. But the period for which you propose to borrow should be
short term or temporary, and you should have a high
probability of being able to repay the loan on time.
It is, however, a strict no-no to borrow against gold if you
wish to use these funds for instant gratification or speculative
investments. In that case it is advisable to just look for some
other options!
Dos and don'ts
Go for a gold loan only if you are looking for emergency
funds and dont have any other option.
Customers with bad credit history, low or understated
income can also go for it.
Avoid a gold loan in case you are unable to repay the loan
or are likely to default on repayment.
Avoid it if gold prices are likely to correct drastically during
the loan tenure.
Dont use the funds for instant gratification or speculative
Finance dept. muthoot finance gandhidham.