INTRODUCTION

Gold Gold has been widely used throughout the world as a vehicle for monetary exchange, either by issuance and recognition of gold coins or other bare metal quantities, or through gold-convertible paper instruments by establishing gold standards in which the total value of issued money is represented in a store of gold reserves. The first gold coins of the Grecian age were struck in Lydia around 700 BC.[28] The talent coin of gold in use during the periods of Grecian history both before and during the time of the life of Homer weighed between 8.42 and 8.75 grams.[29] From an earlier preference in using silver, European economies re-established the minting of gold as coinage during the thirteenth and fourteenth centuries. However, production has not grown in relation to the world's economies. Today, gold mining output is declining. With the sharp growth of economies in the 20th century, and increasing foreign exchange, the world's gold reserves and their trading market have become a small fraction of all markets and fixed exchange rates of currencies to gold were no longer sustained. At the beginning of World War I the warring nations moved to a fractional gold standard, inflating their currencies to finance the war effort. After World War II gold was replaced by a system of convertible currency following the Bretton Woods system. Gold standards and the direct convertibility of currencies to gold have been abandoned by world governments, being replaced by fiat currency in their stead. Switzerland was the last country to tie its currency to gold; it backed 40% of its value until the Swiss joined the International Monetary Fund in 1999. Pure gold is too soft for day-to-day monetary use and is typically hardened by alloying with copper, silver or other base metals. The gold content of alloys is measured in carats (k). Pure gold is designated as 24k. English gold coins intended for circulation from 1526 into the 1930s were typically a standard 22k alloy called crown gold,[33] for hardness (American gold coins for circulation after 1837 contained the slightly lower amount of 0.900 fine gold, or 21.6 kt). Although the price of some platinum group metals can be much higher, gold has long been considered the most desirable of precious metals, and its value has been used as the standard for

many currencies (known as the gold standard) in history. Gold has been used as a symbol for purity, value, royalty, and particularly roles that combine these properties. Gold as a sign of wealth and prestige was ridiculed by Thomas More in his treatise Utopia. On that imaginary island, gold is so abundant that it is used to make chains for slaves, tableware and lavatory-seats. When ambassadors from other countries arrive, dressed in ostentatious gold jewels and badges, the Utopians mistake them for menial servants, paying homage instead to the most modestly dressed of their party.

Gold loans Gold loan means when loan is offered to the customers against the value of the gold jewelry.They say, old is gold. Gold has a unique value and charm. Gold can save you in a crucial situation when you need money urgently. In an urgent requirement taking gold loan is better than personal loan and loan against property. The process is so fast that you will get the loan in one working day if you have proper identity proof and residence proof. Some lenders give it within an hour. The interest rate depends on the jewelry, the more you have the jewelry the interest will be less. The interest rate of each lender is different. Mostly cultivators prefer to take gold loan against their gold ornaments as they want to put their idle ornaments into productive use. Others also who need in some crucial time can opt for a gold loan. The golds that are submitted are not sold by the lenders; it is kept as a moveable property. A gold loan seems more convenient as it has less process in the approval of loans. The ornaments are measured and the market value is counted. The loan applicants do not have to submit their credit history as the ornaments itself work as credit. If the market value of the ornaments does not exceed 70% of the market value of the jewelry, the interest rates will be less. The repayment burden is lower than an EMI. It is advisable to contact us immediately when you want to apply for a gold loan from any bank. Our loan experts will give you details of the interest of each lender, you can choose the most convenient one. If your loan amount is half of the market value of the jewelry then the interest rates will be lower. The jewelry will be safe; it is sealed in a pouch in front of the owners. Why People Do Opt for Gold Loan

No EMI The interest rate is low Instant loan Safety of the gold ornaments

Gold is the most precious metals worn as ornaments by millions of people. The owners seem to have emotional touch with the ornaments. In case the borrower cannot repay the loan within the time period, the lender could sell the jewelry to recover its dues. Borrowing against gold is becoming more popular as the yellow metals price reaches for the stratosphere and Indians lose their inhibitions over pledging their family heirlooms as collateral. Is it safe to do business with these gold-loan companies? Of late, we see a number of advertisements from many gold financing companies, including listed companies, informing the public to keep their gold ornaments with them "for safe custody" and also enjoy loans/returns. These advertisements are deceptive with some notable cinematic personality advocating them. All what these gold finance companies want to convey is that they have the facility for 'safe custody' of your gold or ornaments; but they want the public to pledge them and avail of a loan. Companies like Muthoot, Manappuram etc have become popular over the past few years with lots of publicity, trying to woo the attention of middle- and lower-middle class people. Is it safe to deposit your hard-earned money with these companies? How have these companies been operating? A gold loan is not a new phenomenon to Indians. It has been the main source of lending and raising money from the earliest days of financing. The origin goes back to a few centuries when it was the main item of barter and trade. And India was, and is, the highest user of gold ornaments in the world with states like Kerala and Tamil Nadu holding top rankings among the Indian states. In every south Indian TV channel you will see scores of advertisements from various retail jewelers who vie with each other to extend lots of discounts to buyers under the name of 'making charges', etc.

These companies have roped in the most popular cine stars as brand ambassadors, making many start-struck investors to sign on the dotted line for a loan.

The origins of gold loans are from the southern part of the country. Moneylenders - like the Chettiars of Tamil Nadu, the Shroffs and Marwaris from other parts of India and landowners from all over the country have traditionally lent villagers money against their gold for special occasions like marriage. The lenders accepted gold as collateral because the borrowers invariably worked for them. For an individual, it was an easier way to raise loans in a very short time, and with minimum hassle while borrowing.

Looking at these advantages, banks in coastal Karnataka (like Syndicate Bank and Canara Bank); Kerala (Federal Bank, South Indian Bank, Catholic Syrian Bank and Dhanalakshmi Bank) and in Tamil Nadu (Indian Bank, Indian Overseas Bank, Karur Vysya Bank and Lakshmi Vilas Bank, among others) entered the gold-loan fray during the 60s in a grand manner.

Most private sector banks in southern states extended loans against gold ornaments because:

1) It was easier to reach the retail masses for these banks as they were not widely spread then 2) Other advances required assessment techniques and small banks did not posses the same 3) The 4) The security profit was adequate margins (margins as high as were 50% were also huge charged)

These banks grew their loan books and ticket sizes mainly through these types of loans and also introduced 'pigmy payments' and daily collections from borrowers to repay the loan and interest. Their service was impeccable during those days and the banks registered a good name with increase in customer base and increased profits and developed very fast. The problems started surfacing when interest rates and market rates of gold started increasing. Very few banks allowed re-pledging of these borrowings. The borrower, who had placed his ornaments (not for safe custody but for actual need) was not able to repay the loans.

Interest rates were even as high as 24%-36% p.a (with processing fees, etc thrown in) without taking into note the penal rate of interest. Banks did not need any specialised people. Only an

appraiser was necessary, a man who would check the ornaments after rubbing it on a testing stone and dipping the scratched portion of the gold on the stone in nitric acid/sulfuric acid and testify and certify the genuineness of the gold contents in any ornament.

The repayment was not very prompt as people who used these facilities were poor people and farmers and the banks were comfortably able to square off the loans along with the huge interest cost mainly because of the increase in gold prices, and more because of the hefty margins they had.

These loans were considered as short-term borrowings and there were no interest-leveraging activities, back then. The ornaments were stored in the strong rooms of various banks. When the finance companies (who were also accepting deposits and running chit funds in Kerala and Tamil Nadu - they were referred to as 'Blade companies') collapsed in the early 80s, many of the depositors lost their money.

But I would like to reiterate here that a few banks brought in some discipline in the whole process of gold loaning and established some norms. Even today it is better to take a gold loan from a bank than from any of these gold loan companies.

These companies face stiff competition from banks and were not able to win customers when banks were active in this business. Gold loan companies were also accepting deposits from the public and many were local societies and had a few individuals who controlled how and to whom the loans should be given. The rate of interest was variable depending upon the decision of these people. These companies started to get into problems due to the wrong management style that they adopted back then. And at these times, some of the better companies saw this position as an opportunity for them to grab the pledged assets (gold) at reasonably lower prices by auctioning them through known persons, whenever the gold loans became non-performing assets (NPAs).

In this project I am going to compare State bank of India and muthoot finance as they are the major players in the gold loan industry.

SBI belongs to the banking category whereas Muthoot finance belongs to the non-banking sector.