Axis Bank is also following its footsteps and plans to enter the business. “So far, we have been watching the market, assessing the risks and evaluating the business model. Most of these have been sorted out. we will start ramping up our business now, and would  be more active in the gold loan market from the next financial year,” says Jairam Sridharan, head of consumer lending and payments, Axis Bank.

NBFCs offer these loans at 18-24 percent interest rate. Experts say, banks will attract the customers by lending the loans at 11-15 percent interest rates and lend only 60 – 80 percent of the gold value. Credit risk in the gold loan in much lower compared to unsecured personal loans.

“These loans are given against securities that do not depreciate very fast. Also, the securities are relatively liquid. It is a good deal if you get 11-12 percent interest by offering loans against these securities,” says a Mumbai-based private bank. A Chief Executive of a mid-sized private sector bank said, “In many of our rural branches, we found customers were coming to the bank only to borrow loans against gold jwellery. In some of our branches, the only business is to lend against gold. We are looking to expand this business in the coming quarters.”