subject: Gold Loans; Significance of Growth Rate in the Economy [print this page]
Gold Loans are defined as the loan facilities where the banking institutions provide the option to the borrower where they can deposit collateral securities like gold jewellery and ornaments. The gold jewellery and ornaments are then valued and a monetary amount is evaluated and this monetary amount will be provided as a gold loan. A fixed amount of charge on the principal amount of the loan is decided and this interest amount is payable monthly. The functioning of the gold loan facilities will be instrumental in the growth and diversification of the financial instruments in the economy. Over the years gold loans have been eliminating problems from people's lives through the creation of provisions to use money lent from banking institutions so that they can be used for productive purposes. Several indicators in the economy point out the impact that gold loans have had on the economy. Thus following are some of the positive impacts that gold loan interest rate functioning on the economy-
Growth of Investment in the Economic Environment- The first instance of a positive impact on the economy through the use of gold loan facilities is the growth of investment expenditure in the country. Suppose a consumer is going through acute economic and financial stress. He has a certain amount of gold with him which is lying unused. He wants to use that gold to liquidate monetary amounts that can be used for productive purposes.
The consumer would then have to take the gold to the banking institution where he would be able to finance the loan facility. The Indian gold loan banks would value the amount of gold deposited and then provide a monetary amount as a loan and transfer the amount to the personal account of the borrower. This action will take place only when the documents submitted by the borrower are proper and subject to approval by the private commercial banking institution from which the gold loan is being sanctioned.Thus with the amount of money they have at their disposal they would be able to increase the investment expenditure level in the country.
Reduction of Existing Debt-Burden- The second positive impact that gold loans have on the financial market of the country is helping borrowers reduce their existing debt-burden and thus allowing them the opportunity to save a significant portion of their money which they could use for future investments. At times the borrowers already have an existing debt with a commercial bank. When they take a fresh gold loan from the private commercial banking institution they will use that monetary amount to clear off the previous loan which was present as a financial burden on the shoulders of the borrower. At times when the borrowers have to pay a significant amount of money as interest, they become bogged down as whatever they earn is spent in giving interest to the banking institutions. Such situations can be avoided when gold loan facilities are availed. The fact that gold loans have been the major financial instrument that has been responsible for accelerating economic growth and development in the country.
Increasing Economic Resources- The final positive impact that gold loans have on the financial system of the country is increasing the proportion of economic resources. When the gold loans are availed and they are regulated in the environment there is an opportunity that economic resources in the country would increase. With the increase in economic resources comes the opportunity of regulating income level and ensuring that the fundamental resources are available in plenty.
Conclusion Thus it is very important to understand that gold loans have played a crucial role in the growth of the financial environment in the country.
Author’s bio:
Gaurav S. Khurana is the Founder and CEO of Dialabank and has had a great career in the Banking and Financial Services Sector. He has an experience of 18 years in the sector and has worked at Senior Roles including National Sales Head at ING Investment Management India and as the Vice President Citibank. A post-graduate from IMT, Ghaziabad. Gaurav started his career as a Named Account Manager in Xerox.
Being a part of this field for a long time now, he has written many informative articles and blogs benefiting and assisting many in making decisions regarding the policies provided by various banks and non-banking financial companies such as the Indian gold loan policy.
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