GOLD LOAN ?

Even though gold is a bubble, it's a rather interesting kind of bubble. The price of gold in international market alone will not cause the bubble to burst or cause instability and uncertainity in our local market. This is best demostarted last month when the global gold prices dipped sharply yet Indian market was still strong due to the weak ruppee.

Also, from time immemorial, gold has been a favoured instrument of investment for us India. It holds a lot of emotional and cultural value to us. It is not the steep price gradient that's always triggering the buying. Haven't you noticed how, even during this high price regime, the demand for this yellow metal hasn't slightly gone down nor has the quantity of gold given during marriages has decreased considerably?

Yeah, the weak rupee! It however does create a blind spot for investors in India, since it gives the impression that gold prices are somehow increasing but in reality it is the rupee that has depreciated against the dollar.

It is a valid point that people in India buy gold for different reasons, but I'm often jealous of gold climbing so high, it is not even money, it cannot even be consumed, it is not useful, it is just pretty and that alone works for it.

Yes. It's true that this a bubble in the offing. But for that to burst, the local market conditions or local players wont be sufficient enough. Its more based on international market conditions. So the chances of a gold scam are less.

Gold investment and circular trading is what is going to cause the bubble to burst.  If GOLD value has stability, RBI will not recommend 60% as security value, assuming Gold touches $ 2000 it may crash to $ 1200 that is when people will panic.

I'm a banker and let me tell you something. Most banks offer per gram rate close to 70-80% of the market value, while the NBFCs offer nearly 90% LTV. The interest rate specified by NBFCs will be 6-10 percent monthly while will amount to something around 18-26% p.a. Most people don't know it. When they see 6-10%, they assume that its a per annum rate. The banks, on the other hand, offers gold loan at a rate of 9-12% p.a. There is another gold loan portfolio called as agricultural gold loan where some of the govt banks offer loans upto 3L for a nominal rate of 4% p.a. 

This much being said, let me explain something else. Most people raise gold loans to meet financial exigencies. The advantages are that its quickly processed and very little paper works are required. Also, most people see it as a short term financing and as such, most gold loans are for a period of 3-6 months only. Noone would, in the usual sense, keep gold loans for more than an year. 

The 60% cap on NBFCs is to reduce the concentration risk on these companies since they rely solely on this portfolio and chances of a mass collapse due to corrections in gold price would adversely effect them and in turn effect the other financial institutions who lend them money for further loaning through gold loans.

There is nothing wrong in taking gold loans and this is a great help to our middle class household since it is quick, easy and most people have some amount of gold with them. Even though the interest rates will look steep, the actual interest payable, when worked out, will be manageable even in the case of NBFCs. 

If people are educated about the various facts of this particular portfolio, it is a good and dependable way to raise short term funds. Also, people should be mature enough to keep away from the so called "blade mafias"

Well said Blade Mafia companies are the ones who will take customers for a ride, we don t know how many of them will survive.  Ultimately gold scheme circulation will create a bubble which is bound to burst.  In this direction the govt is forced to increase customs duty, i hope this does not once again create smuggling trend.

I am sure the bubble is going to burst with circular trading, we might have a GOLD SCAM in the offing in future.  I hope CBI and other investigative agencies will have their hands full going behind the culprits.  I was surprised that a gold trading ponzi scheme had an office address behind CBI office in Bangalore, i refused to join the scheme.

practically, muthoot fin. etc. are autioning gold loan  deposits every month. at the time of deposit people think they will be able to take back their jewelary, but that happens very rarely. 

it should be completely banned or rate of chargeable int. reduced.

I too feel that loan interest should not strictly exceed 13% good to know at least nationalised banks are lending @ 9 - 12 %, ultimately if all gold loan comes for auctioning it will lead to crash in the precious metal prices.  A real Ponzi effect will be created.

I hope RBI brings in more checks and balances to regulate some blade companies who are bound to vanish when gold prices move up