The Yellow Metal; Gold has been a part
of our society for a very long time. For Indians, gold is considered
much more than a hedge. While it is a legacy in many parts of India,
it is an investment to mitigate financial risks during inflation,
economic, social and geographical crisis. Citing this sentiment and
furore for gold, financial institutions introduced the concept of
‘organized lending against gold’, a concept otherwise widely practiced
in the unorganized sector.
NBFCs like Muthoot and Manappuram, who
control about 90% of the gold loan market, extend loans against
physical gold. Due to an emotional attachment to the gold, individuals
seldom choose to sell their gold in times of need, rather they choose
to pawn it. And hence, NBFCs view lending against gold as a lucrative
option since defaults against gold loans are comparatively lower.
During the pandemic, lenders witnessed a
significant surge in the demand for loans against gold as borrowers
faced an immediate and temporary cash crunch. In most scenarios of an
immediate financial crunch, the foremost step one takes is either
liquidating or taking a loan against their valuable assets to keep the
cash flow in motion.
Today, with technology joining the
equation, we are introduced to ‘GoldTech’. Where gold has been steeply
priced in the market, the pandemic paved the way to an innovative form
of lending against gold- Lending against Digital Gold.
Financial institutions partner with
third-party platforms that enable individuals to purchase gold
digitally. The said gold can be converted into physical gold at any
point if required. If not, it can be treated as an investment with the
bank. For instance, DBS Bank India has partnered with SafeGold, a
third party, to offer its customers a platform where they can buy and
sell digital gold.
This technology has now furthered where
consumers will be able to take a line of credit or a cash route,
depending on the lending partner and will be able to borrow against
digital gold. While individuals will have the ease of availing a loan
within a few minutes, financial institutions will have the security.
With gold following historic trends
rather than market sentiments, lending against digital gold is as
lucrative as physical gold. Moreover, with about 65% of gold financing
in India taking place in the unorganized sector, a paradigm shift can
be expected from the unorganized to the organized sector. However, the
regulatory and operational landscape for digital gold lending has been
quite a challenge for institutions.
Indiagold, a lending startup, appears to
be India’s first platform to offer loans against digital gold with a
capping of Rs 60,000. Leading players like Paytm, Google Pay, PhonePe
in the digital gold-selling space in India may partner with such
service providers to diversify their portfolio while furthering the
recognition of loans against digital gold.
India’s changing landscape in the financial arena has presented
several prospects to innovate and introduce newer services. A loan
against digital gold is an evolution and can prove as a modifier in
the gold credit system.