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How to Start a Gold Loan Business? Registration, Licensing, and Procedure



How to Start a Gold Loan Business

How to Start a Gold Loan Business: With the world having less and less gold to rely on, countries around the globe look to India for their annual gold requirements. As per the World Gold Council (WGC), India ranked as the largest consumer of gold in the world from 1987 to 2016. And it does not seem like the demand for this precious yellow metal is showing any signs of slowing down. The precious metal, other than being used for industrial, commercial, and investment purposes, is also used by individuals to get a loan against it to help them save from financial trouble. And this is the main reason why the gold loan is the most popular option among borrowers. Most of the borrowers opt for gold loans since they require less time to process and instant cash will be given.

Thus, if you are looking to start a gold loan business in India, then this page is for you. This page will help you to understand everything about how to start a gold loan business, including the list of licences required, registration required, and a detailed gold loan business idea. So why wait? Start scrolling to understand everything about the gold loan business idea.

Table of Contents

How Can I Start a Gold Loan Business?

Before we answer your question, it is extremely important for you to understand what a gold loan is and how it works. So let’s start by understanding what is a gold loan and how it works in India.

What is Gold Loan?

Gold loans are also referred to as loans secured by gold. Lenders will do their own diligence before approving the loan and require the borrower to deposit gold with them as collateral. The lender will check the purity of the gold and then issue the requested amount by the borrower. Once the borrower repays the loan amount, the lenders will hand back their gold articles. So, whether borrowers need cash for a business, to fund a wedding, or for other reasons, a loan against gold is an excellent way to accomplish their goals while encouraging the recycling of precious metals.

How Does the Gold Loan Business Work?

The entire process of a gold loan is quite similar to other secured loans. A gold loan allows individuals to borrow money using their gold as collateral, which is something they are able to pay back over time. So individuals will meet with a lender. The person who is lending money against the gold will appraise the value of the gold articles and make sure that all the necessary documents are in order. Once everything checks out okay, the lender will agree to give the borrower the loan in exchange for the pledge of their pieces or items of gold. Once everything is settled between lender and borrower, the individuals would complete the payment/repayment process by repaying the principal amount and any additional fees plus interest. After this is done, the borrower will return the customers’ items.

Now that you understand what a gold loan company is and how it operates, let’s start exploring the list of licences required and RBI guidelines to start a gold loan business in India.

RBI Guidelines for Gold Loan Companies in India

The RBI guidelines for gold loan companies in India are outlined below. It is important for an individual to follow all the guidelines before starting a gold loan company to avoid last-minute troubles.

  1. For loans issued against gold jewellery as collateral, all NBFCs must maintain a loan-to-value (LTV) ratio of not more than 75%.
  2. All NBFCs should disclose the ratio of such loans to total assets on their balance sheets.
  3. NBFCs should not lend money against gold bullion, primary gold, or gold coins. NBFCs are not permitted to provide financing for the purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, ETF units, and mutual fund units.
  4. At monthly intervals, interest will be applied to the account, but it will not become due for payment until the end of the 12-month period after the date of sanction.
  5. It has been stated that crop loans secured by gold ornaments would continue to be controlled by the existing revenue recognition, asset classification, and provisioning requirements for such loans.

How to Get a License for a Gold Loan Business in India?

To get a licence for a gold loan business in India, one will have to get their gold loan business approved by the officials of the RBI and should have NBFC registration. The steps to getting a licence for the gold loan business in India are explained in the next section. However, before understanding the licence registration procedure, one will have to keep the following documents on hand to make the registration procedure hassle-free.

  • A banker’s certificate of no lien stating the net owned fund
  • A banker’s report about the company
  • Board resolution copy
  • Copy of the Auditor’s Report of the Receipt of the Fixed Deposit Receipt
  • Education or professional training Proof of the director
  • Incorporation certificate of the company
  • KYC and income proof of the director
  • Memorandum of Association and Articles of Association
  • Net Worth Certificate of the Directors
  • Proof of work experience in the financial sector
  • The directors’ most recent credit report
  • The organization’s structure plan

How to Register a Gold Loan Business Company in India?

The step-by-step procedure to register your gold loan company in India is given below:

1. Choose and Apply for Company Name Approval

The first step is to apply for brand name approval from the company. Brand naming is important because it’s what defines your company and ultimately becomes your brand, encompassing all of its associations in customers’ minds. The following are some guidelines that you have to follow to help choose a brand name:

  • The company name or brand name that you have chosen should be unique. Make sure your chosen name doesn’t match any existing company names.
  • The company name which you have chosen must not be copied from any registered brand name. Thus, do a proper trademark search. This ensures that your name does not already exist in the class 36 category, allowing you to avoid any legal disputes arising from the use of your name.
  • The name chosen should also not be too generic.

Once you have selected a name for your company, get your company name approval under ROC by submitting all the necessary documents.

2. Apply for Company Incorporation

The next step is to apply for company registration with the MCA after receiving the name approval letter. This is the final stage in the incorporation process, but it takes a long time because there are several additional documents to design, sign, and send to the Registrar of Companies (ROC). If all of the paperwork is evaluated to be in order, the ROC will issue your company’s Certificate of Registration, as well as its PAN and TAN.

3. Open a Bank Account & Set Initial Compliance

You are now ready to start your gold loan business after receiving your company registration. However, before you begin, you must set up a few things correctly in order to increase your company’s activities and gold loans. Choose a bank and open an account with them. Keep the following paperwork on hand in case you need to create a bank account:

  • MOA
  • AOA
  • Board resolution
  • Certificate of Incorporation
  • Director Pan and identification proof

4. NBFC Registration for Your Gold Company Business

Any individual who wishes to start a gold loan company business will have to register his or her business under NBFC Registration. Thus, if you have NBFC registration, you can easily start your own gold loan company.

To get NBFC registration, your company should be registered under the Companies Act 2013 or the Companies Act 1956. Also, the company’s net owned funds should be at least Rs. 2 crores. In your gold loan business, at least one director from the same background should be present in the organisation. Furthermore, to register as an NBFC, you must have a good CIBIL score. Once you have the above mentioned requirements, you can simply follow the steps below to get registered under NBFC:

  • 1st Step: Go to the RBI’s official website and fill out the application.
  • 2nd Step: Along with the application form, provide all relevant documentation.
  • 3rd Step: A CARN number will be generated once you have submitted the application form.
  • 4th Step: Send the application in hard copy to the RBI regional branch.
  • 5th Step: The licence will be awarded to the company when the application has been evaluated and approved.

5. Hire Employees to Run Your Gold Loan Business

Once you get all the necessary registrations done, you can simply start hiring people who are well versed in the gold loan business and start operating the business.

Working of Gold Loan Business Idea in India

Now that you are aware of how to start a gold loan business, but are not sure how to run the gold loan business, Thus, to help you, here is a glimpse of the gold loan business in India, which talks about how gold loan companies are operating in India.

1. Gold Loan Type: Secured

The company accepts your gold as security for the duration of the loan with a gold loan. A gold lending company will charge you interest, and once you’ve paid off the loan, the bank will return your jewellery.

2. Acceptable Collateral or Security

Another important aspect of how a gold loan works is the sort of gold that is accepted. The majority of gold lending companies only take gold jewellery. In addition, the gold used as collateral should be between 18K and 22K in purity.

3. Offering a Maximum Loan-to-Value Ratio

Most banks provide gold loans with a maximum loan-to-value ratio of 75 percent of the gold’s current market price. So, if your gold value is around 100,000, the most you may borrow from it is 75,000.

5. Gold Evaluation & Sanction Process

When it comes to the evaluation and sanction process, the lending company follows these steps:

  • The bank evaluates the gold provided by the applicant as collateral, after which it determines the maximum amount that can be borrowed.
  • The rate of interest is also determined based on the rate at which gold changes in price.
  • Borrowers can select the loan repayment tenure: 6 months to 2 years for gold loans.

2 Important Factors to Consider While Starting a Gold Loan Company

Starting a gold loan company is easy if you are sharp on the following two factors:

1. Gold Safeguarding

Since you’re a lending organisation, you should assume responsibility for safeguarding clients’ gold items once they’ve handed them over. Some lenders even protect their gold items with insurance. As a result, it is usually a good idea to ensure the gold you have received from customers.

2. Options for Repayment

It is extremely important for you to choose the repayment options that are suitable for your business. The list of repayment options that you can choose for your company is as follows:

  • Bullet Repayment: This option requires customers to return the full balance, including principal and interest, in one big sum at the conclusion of their term.
  • Pay Interest as an EMI & Principal Later: Interest is paid as an EMI, and the principal is paid later. Customers have the option of repaying the interest as an EMI each month. The borrowed sum, however, must be reimbursed in full at the conclusion of the term.
  • Regular EMI: For the term of the loan, the required amount, interest, and principle will be divided evenly and paid every month.
  • Partial Repayments: Customers can pay the balance owed as and when they see fit with this approach. The entire balance must be paid before the due date.

Now that you have been provided with all the necessary information on how to start a gold loan business company in India, make sure you are getting all the necessary approvals. By doing so, you won’t have any intrigue and can run your business undisturbed.

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