Gold has traditionally been a safe asset to almost every household in India. And with changing trends, it has emerged as a convenient means to avail a loan.

The gold loan-business in the country has flourished over the past few years, as lending against gold is proving to be a safer and easier way for people to get cash instantly. Having its roots in southern India, 85 to 90 percent of the gold loan-market exists in states like Andhra Pradesh, Tamil Nadu and Kerala. However, the business is gradually picking up in other parts of the country also.

"Keralaiets are very much fascinated about purchasing of jewellery. So, because of the large prevalence of jewellery, the jewel loans have relatively been higher in Kerala, followed by the other states like Karnataka, Tamil Nadu and Andhra Pradesh", said V. P. Nandakumar, Chairman, Manappuram Finance, Kerala.

"Gold loans are becoming an opportunity for customers to borrow, by giving security and thereby reducing their unsecured borrowing cause. I think gold opportunity is becoming a good opportunity, both for bank and the customers", said Shyam Srinivasan, Managing Director and CEO, Federal Bank, Kerala.

According to an estimation of the Icra Management Consulting Services (IMACS), the organised gold loan-market in India stands at $8 billion USD and is growing at a compound annual growth rate of 40 per cent since 2002.
With more financial institutions and banks entering this lucrative and safer business, the industry is set to grow manifold.

Many public sector banks are offering gold loans for a low rate of five to eight percent per annum, while home and personal loans stand at nine to sixteen percent rate per annum.

Private banks too are cashing in on this trend.

"With the advantage now of formalised players, the players like large banks, even public sector banks such as SBI or large private sector banks such as HDFC or ICICI or large NBFC's, Manappuram, Muthoot, Reliance, I think all of them are looking to the gold loans to customers whether the loans are required to be utilized for business, education etc. India has 18,000 tonnes of privately held gold, which is estimated to be worth 900 billion USD.

The flow of gold in the market will add to economic growth of the country.

Nandakumar added, "This gold is practically lying idle with the household, which is not coming to the mainstream economy. When it comes to the mainstream economy, the growth potential for the economy will definitely go up by another 150 or 200 basis points. So, this will help the economy to grow."

Since rural India holds 65 per cent of the total gold stock, organized players in the gold loan industry are targeting rural customers to fulfill their requirement for gold.

They want to grab the share of large-operated unorganized gold loans market which includes numerous money lenders and cooperative societies operating primarily in rural Indian.