From Theaustralian Dot Com Dot AU
THE surging price of gold is prompting a stampede by Indians to pawn their jewellery and gold coins as a way of raising cash for cars, televisions and other consumer goods, according to the country’s biggest lender.
Demand for cash loans using gold as collateral – a regular banking service in India offered at thousands of branches – is exploding at 37 per cent per year, according to HDFC Bank.
Indians are expected to take out loans worth nearly $US12 billion this year by pawning their gold, up from $US2.5bn in 2007, Biju Pillai, the executive vice-president at HDFC, said.
“It’s increasingly popular,” he said, adding that Indian banks and specialist lenders were scrambling to cash in on the trend, which is being driven by a decade of rising prices and India’s huge private stockpile of gold.
Worn as rings, bracelets and neck-laces or stashed away in cupboards and safes, Indians are believed to hold about 18,000 tonnes of gold – worth about $US900bn at present prices.
That is more than twice the size of the combined 8100 tonnes held by the US Federal Reserve at Fort Knox, Kentucky, and a vault beneath the Federal Reserve Bank of New York.
“Gold is an asset that is available to virtually all customers in India, rich and poor. People are using it for buying consumer goods, cars or even just to buy more gold,” Mr Pillai said.
Ajay Mitra, managing director of the World Gold Council in India, said: “Gold is in our DNA. We have been using it for 5000 years and Hindu mythology says the world was created from a golden womb which exploded … The word gold is interchangeable with the word auspicious.”
With a growing population of 1.2 billion people, India’s insatiable demand for gold is driven chiefly by wedding gifts – which account for about half of all purchases.
It is the high level of gold ownership, combined with a great awareness and interest in gold prices, that is driving the popularity of gold loans as an easy way to raise cash.
Gold loans are about 5 per cent cheaper than regular bank loans and require less documentation to complete, Mr Pillai said.
Rising world gold prices, which touched a record $US1437 per troy ounce on March 2 as investors sought safe havens after the earthquake and tsunami in Japan, are also pushing up the size of the loans available to Indian gold owners.
Mr Pillai said that traditionally the market was dominated by small-scale pawnbrokers, but as India’s economy expanded at a brisk 8 per cent annual rate, the gold loan market was becoming increasingly sophisticated, with the country’s top banks and a string of specialist chains, such as Mannapuram Gold Loans, entering the market.
Mr Pillai also said that Indians were gradually overcoming a cultural stigma attached to pawning gold, which has been reinforced by countless Bollywood films depicting it as a humiliating last resort.
“There is a change of mindset under way,” he said. “Slowly but surely, people are realising that it is a smart option.”