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Organised gold loan biz may double this fiscal


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Roots in business since 1887, Muthoot Pappachan Group (MPG) activities include gold finance, financial services, consumer loans, hospitality,infrastructure, automotive, alternative energy.

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Organised gold loan biz may double this fiscal

  1. 1. Gold Loan
  2. 2. <ul><li>A gradual shift from pawnbrokers to organized lenders by people who raise money against gold ornaments is expected to double  the  holdings of three specialized companies in the business to 200 tonne, or over a third of the 557.5 tonne held by Reserve Bank of India (RBI), by the end of the current financial year. </li></ul>
  3. 3. <ul><li>Nonbanking finance companies  such  as Muthoot  Fincorp of the Muthoot Pappachan Group, which specialize in providing loans  against gold, charge an average interest of 20-22% a year against 36-40% charged by usurious moneylenders.   </li></ul>
  4. 4. <ul><li>Apart from lower rates of interest, NBFCs like Muthoot and Manappuram boast a processing time of as little as half an hour for loans up to Rs1 lakh against jewellery. </li></ul>
  5. 5. <ul><li>  &quot;The  change in our holdings and an increase in loan book size are chiefly due to a shift of business from the unorganized to the organised market,&quot; said George Muthoot , Muthoot Pappachan Group. </li></ul><ul><li>“ The rise in our gold loan portfolio is  because  of  a  gradual  shift from unorganized pawnbrokers to the organized lending market.&quot; </li></ul>
  6. 6. <ul><li>However, he shied away from  commenting on the increase in loan assets or gold holdings citing that his company was in a silent period prior to an initial public  offering. The company expects to raise a reported Rs 1,200 crore from the public to meet working capital and capital adequacy requirements. </li></ul>
  7. 7. <ul><li>According  to the central bank's annual report for FY10, the total holding of gold by the Reserve Bank stands at 557.75 tonne  including  a purchase of 200 tonne of gold from the IMF on November 3, 2009.  </li></ul>
  8. 8. <ul><li>NBFC  sources  estimate  the  gold  held  by households in India at 20,000 tonne out of which 10%, or 2,000 tonne, is held by  lenders  across  the  country.  &quot;Of this 10%, only 25% is with the organized players including NBFCs and banks. So there is a great potential for the organized markets to grow. </li></ul>
  9. 9. <ul><li>The  average  ticket  size of the loan is around Rs 30,000 and the tenure is normally up to a year. The attractiveness of the  product  lies in the absence of equated monthly installments - instead, the NBFCs charge the principal and interest component at the  time  of loan closure - and the non-levy of penalty for foreclosure of the loan. &quot;The loan can be paid back any time during  aperiod  of  one  year  with  consumers  normally  closing  the  loan  in  about  four  months,&quot;  said  George Muthoot </li></ul>
  10. 10. <ul><li>  The  NBFCs  deduct  around  30% of the value of jewellery as security margin and ask consumers to top it up in the event gold prices  fall.  However,  in  a  rising price environment, as has been witnessed over the past 10 years, a consumer can simply close  an  existing loan    and    take a fresh one to get more money against the pledged gold. </li></ul>
  11. 11. <ul><li>  &quot;Most  of  the  people  who  can borrow from NBFCs using gold as a collateral are not too aware of this product,&quot; said Pankaj Mathpal, a certified financial planner. &quot;But, to my mind, it is better for a person who has gold to use that as collateral and  borrow   from   organized   lenders   instead   of   going   in   for  a  more  expensive  personal  loan  at  16-36%.&quot; </li></ul>
  12. 12. <ul><li>  NBFCs  like  Muthoot  and Manappuram, predominant in the south, have begun to extend their reach by setting up more branches.   </li></ul>
  13. 13. Contact Us <ul><li>Registered Office Muthoot Center Punnen Road Trivandrum - 695 034 Kerala, India E-mail:  [email_address] </li></ul><ul><li>You can check: http:// / </li></ul>