Gold loan market
India is also home to a flourishing gold jewelry market. Due to the emotional value associated with gold jewelry, people usually pledge their gold ornaments as collateral to secure short-term loans. Around 65 percent of the gold loan market in the country is still largely unorganized, with most of the unbanked population largely relying on pawn brokers and traditional moneylenders. However, with the widening scope of financial services in recent years, the share of organized players like NBFCs and banks has been on the rise. The sector saw a surge in demand for gold loans due to economic distress during the pandemic. Certain gold loan NBFCs are now seeking priority sector status for eligible gold loans as taking loans against jewelry is a crucial form of funding for a wide section of MSMEs, farmers, and women borrowers.Financialization of gold
In recent years, the inclusion of the gold industry in the mainstream financial system has transformed it into a legitimate asset class. This seems important because a large part of Indian household gold sits in lockers and remains unutilized. The gold monetization scheme introduced by the government in 2015 to monetize unutilized gold helped banks to profitably use gold deposits while low-interest gold metal loans were used to meet the borrower’s needs. Sovereign gold bonds (SGBs) were introduced as a part of the scheme to reduce interest in physical gold. SGBs reduce the risk of storage and investors are assured of the market value of gold at the time of maturity. Moreover, physical gold-backed exchange-traded funds (ETFs) are emerging as alternative ways to access the market and diversify investment portfolios.Digital shine
New gold-related financial products like digital gold are converting a rather traditional sector into a futuristic investment space. Digital gold is a mode of investing in physical gold, that can be bought online and stored in insured vaults by the seller. Several fintech are disrupting the Indian gold market and capitalizing on the country’s booming gold opportunity. Platforms like Paytm and Google Pay as well as large jewelry players like Tanishq and Kalyan Jewelers are entering the scene. However, it must be noted that digital gold is still unregulated in India and the Securities and Exchange Board of India (SEBI) barred SEBI-registered investment advisors from dealing in unregulated products.
