How the gold loan is offered by banks in marketplace:

The gold prices on the stock exchange hitting record highs. Online pawnbroker Borro.com saw a 300% rise in Gold loans in 2010. That is due to the fact that a new loan applicant would receive a 22% larger loan offer now than they would have received than at the start of the year for the same items or gold weight. 2011 is going much the same way. Almost every middle-class Indian family owns gold jewelry, which is central to weddings and few traditionally have been to part with it to secure loans. But with gold prices high, banks have begun to push clients toward gold loans. The gold prices are rises so, middle-class Indians have returned to their age-old preference for gold as a safe investment with stock markets and mutual funds. Bankers say the default rate is much lower for gold loans because Indians do not want to risk losing their family jewelry. And unlike traditional personal loans, no credit checks are needed for gold loans.

The gold loans are better than personal loans being offered by banks. gold  loans are security come at 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. Also the gold loans business is expected to be a focus area for several banks because it offers lenders an opportunity to the individual loans segment without getting involved in risky unsecured personal loans. The private sector banks, like HDFC Bank is planning to grow its gold loan with easy processing methods and competitive interest rates. The bank's gold loan has been growing at over 60 % for the past two years with two products -- the gold overdraft facility offered at 14 to 15 % and gold loans at 12.5 %. Most of the banks offer loans at around this interest rate range.

The most active players lending against gold are non-banking financial companies such as Manappuram Finance. Manappuram lends at 12 % and offers a loan as high as Rs 1,600 per gm, which is very close to the market price.

The HDFC Bank has to plan to increase the number of branches offering gold loans from 150 to 600 over the course of next year. The World Gold Council estimates that the gold monetization process will open up the sector and enable the circulation of 18,000 tunes of gold (worth approximately Rs 30,00,000 crore) back into the economy. Acceptance of gold loans by banks and financial institutions is an important development that will infuse greater confidence in gold as an asset class. Public sector banks such as Canara Bank, Syndicate Bank and some associate banks of SBI offer gold loans at competitive rates from 11.5 % to 13.75 %.