The rise in demand for gold as an investment has given opportunity to banks to offer ‘gold purchase loans".
Banks which are offering the service are Bank of India, Corporation Bank, Indian Bank, Canara Bank, State Bank of Hyderabad, and State Bank of Travancore; gold specialist Mannapuram Finance is also offering this loan.
The loans are targeted specifically to working women, who can avail a loan of upto 10 times of their monthly salary. The bank gives loans for bars, coins and hallmark jewelry, since in case of default they can be sold easily.
Bank of India is offering the loan at 13.50% (3% above the base rate of 10.5%), and asks for a margin of 20%. Non working women can get a loan jointly with a salaried spouse or close relative. A processing fee of 2% is also levied.
SBI associate State Bank of Hyderabad offers the loan at a lower interest rate of 13%, but it has a higher margin of 25%.
15 jewelers have been listed with the SBH. "There is demand for this product and we expect a good response," said Mr. B. Rao, MD SBH.
The possession of the yellow metal can only be made when all the payments have been made, that too within a stipulated time of 60 months (5 years).
However, experts advice to abstain from such loans, because of very high cost of borrowing. Such purchase of gold should be avoided unless one hasn't saved or in case of emergency.