CHAPTER NO. 2

REVIEW OF LITERATURE

2.1 Introduction

(a) Sources of Literature Review

2.2 Review of Literature Relating to Gold Loan

2.3 Review of Literature Relating to Personal Loan

2.4 Review of Literature Relating to Organized and Unorganized sector in

India

2.5 Review of Literature Relating to RBI Policies and Guideline on Gold

Loan and Personal Loan

2.6 Review of Literature Relating to Consumer Behavior

Conclusion

31

2 1 Introduction

An effective research study is based upon past knowledge Hence, after

stating the research problem, it is important for the researcher to review

the available literature in the specific area of study This helps in

understanding the nature and design of the research investigation and

provides evidence that the researcher is familiar with what is already

known Hence, review of literature helps the researcher to eliminate

duplication of what has been done

With the knowledge of available literature, the researcher can gain insight

into the research problem and will enable her to present the problem in the

right perspective Therefore, sometimes, review of past literature provides

useful hypothesis to the researcher

The researcher has undertaken an extensive literature survey related to the

present study The research study is A Study on Comparative Analysis of

Consumer Behaviour on Personal Loan and Gold Loan in Mumbai Metro

Region

The objective of the literature review was to get an insight in the areas of

Consumer Preference between Gold Loan and Personal Loan in the

Organised and Unorganized market in Mumbai metro city The Organised

and Unorganised Loan Lenders further classified into NBFC, Public and

Private sectors in Loan lenders, etc. Accordingly, to achieve the

objectives, the researcher has classified the review of literature into five

sections as follows

2 2 Reviews of literature relating to Gold Loan

2 3 Reviews of literature relating to Personal Loan

2 4 Reviews of literature relating to Organised and Unorganised financial

sector in India

2 5 Review of Literature relating to RBI Policies and Guideline on Gold

Loan and Personal Loan

2 6 Reviews of literature relating to Consumer Behavior

32

Extensive literature is available related to Gold Loan and Personal Loan

and Loan Lenders, Finance sector in India However, the very limited

literature was found in relation to Consumer Behaviour towards a Loan

provision Primary and Secondary sources were used to collect

information

2 1 a Sources of Literature Review

The researcher has found lots of information from the reference Books,

Research Journal, Web sources, Newspapers, Thesis, Government Reports

RBI guidelines The sources of data have been Diagrammatically

expressed in Diagram 2 1 a and Table 2 1 a

Diagram 2 1 a

Sources of Data

Literature

Review

Books

Research

Journals

Government

Reports Thesis

News Papers

33

Table 2 1 a

Sources of Data

Sr No Primary Data Secondary Data

1 Discussion with the consumers of the

Gold Loan and Personal Loan

Articles from journals, magazines and

newspapers

2 Discussion with Managers, Superiors

and experts in the field

Various books written by different

authors

3 Questionnaire method has been used

for conducting field study

Visited Financial Institutions

4 Informal interviews with experts and

bank officials

Web sites

The above Table and the Diagram 2 1 a describe the Sources of the data

collected for the research study It has been classified into Primary data

and Secondary data The secondary data include articles from journals,

Magazine and newspapers, books and websites The data collected from

secondary sources has been properly included in this chapter with citation

Primary data collected has been presented with proper Diagram and

Charts and Table in the 7th

, 8th

and 9th

chapter in this thesis.

34

2 2 Review of Literature Relating to Gold Loan

Churiwal and Shreni 20127 have given the overview of growing gold

demands They highlighted various aspects of Gold Loan from traditional

pawn broker to shifting of Gold Loan to NBFC They also explained the

emerging importance of the Gold Loan to the borrowers as well as lender

due to its movement from traditional lenders to Organised lenders They

also explain the important factors like the rise in borrowing costs due to

removal of agricultural sector status on Loans NBFCs are growing

through Gold Loan compare to organize banks It has become the effective

means of meeting the demand for Micro-finance in India.

Dnyanesh N 20128 discussed that the Organised Gold Loan market has

grown tremendously over a period of time, owing to the changing

consumer Perception about Gold Loan and rising Loan requirements The

Perception of consumers towards Gold Loan has changed drastically The

author has discussed the Changing consumer Perception and rising Loan

requirement of consumers He has pointed out the growing demand of

rising Loan requirement

In Indian Institute of Banking and Finance 20109 has been stated that the

Banks and NBFCs have started attracting the borrowers by providing

Loans against the pledge of gold jewelry The jewelry is weighed and its

purity is certified by Organised Financial Institution gold smith The value

of gold is decided as per the extant market price The interest rate will be

same as applied to Personal Loan, but some institutions are giving

attractive interest rate on gold pledged The provision of the gold Control

Act is also taken into consideration The borrowers are required to repay

7Churiwal Amit and ShreniAshish August,2012 . Surveying the Indian Gold Loan Market publication

Cognizant 20-20

8Nair Dnaynesh N 2012 . Changing Consumer Perception Driving India s Organised Gold Loan

Market,Mumbai, India, International Research Review,p 7

9 Banking Products and Services 2010 . Indian Institute of Banking and Finance p 121

35

the Loan in monthly installments The book s covered appropriate and

complete information on Gold Loan and Personal Loan

Retrieve from the Bank Bazar. Com,10

RBI's Gold Loan regulation for NBFCs 2012 included that the RBI grew

uncomforTable with the high growth rate of Gold Loans for NBFCs Some

of the key points from the RBI s latest guidelines for NBFCs include

transparency in interest rates, due diligence in understanding the

repayment capacity of the borrower, etc. from this BankBazar com, the

vital information has been disclosed about the Gold Loan regulation for

NBFCs

Nandakumar P 201011

stated that the Organised Gold Loan segment is

potentially a vehicle for social transformation Gold Loan must be made a

part of this process In rural areas, lack of access to bank, poor invest in

gold The distress faced by Indian s Farmers needs to move on multiple

fronts in extending timely credit to the rural masses The author has

presented and analysed the distress and lack of access to banks in rural

areas

The central message conveyed by the Report-Draft12

the Report to the

Reserve Bank on August 3, 2012 that the Indians obsession for large

investment in physical gold is the outcome of the confluence of numerous

and divergent factors Given the complexities involved in the lure of gold

in India, a holistic strategy that deploys a combination of demand

reduction measures, supply management measures and measures to

increase monetization of idle gold stocks needs to be put in place Creation

of an alternative asset class that may provide returns compared to return

10

RBI ibid 11Nandakumar V P July29, 2010 Social relevance of Gold Loan Gold Loan gain respect Mumbai, India

Retrieved from www global review com ,p 12

12Retrieve from Report-Draft Report to the Reserve Bank on August 3, 2012

36

on investment in physical gold with similar flexibility is important A

necessary pre-condition for reducing the excessive demand for the

precious metal is to ensure a benign inflationary environment along with

achieving and maintaining macroeconomic stability This report has

highlighted the important measures to increase monetization of gold

stocks.

Retrieved from Gold Control Act, Indians Foreign Exchange Regulation

Act FERA),13

The act gives detail that since 1990, with the repeal of the Gold Control

Act Indians have been allowed to hold gold bars In the year 1993, the

provisions of the Foreign Exchange Regulation Act FERA relating to

gold were repealed and imports were allowed by NRIs and since 1997

gold imports were brought under Open General License All these gave

fillip to the development of not only the gold market, but also the Gold

Loans market With a view to bring the gold holdings to the core financial

market, several gold based financial products have been made available to

retail consumers in the Indian market from time to time Recently,

Exchange Traded Gold Funds ETF has also been allowed in the Indian

markets, which have received a positive response from investors From

this act one can conclude that the gold imports were brought under open

general license with has a positive impact on the Gold Loan market

Verma 201214

explained that how the Reserve Bank of India RBI has

raised the Loan-to-value LTV ratio of the Non-Banking, Finance

Companies lending money against gold to 75 per cent from 60 per cent

earlier, so as to facilitate the monetization of idle gold, according to a

notification by RBI The norms are expected to bolster the Loan books

growth of the Gold Loan companies The central banks said this is in view

13Gold Control Act, Indians Foreign Exchange Regulation Act FERA , p 7

14VermaA, 2012 . RBI raises Loan-to-value ratio for Gold Loan firms to 75 Mumbai, IndiaVCCIRCLE,

P 32

37

of the moderation in the growth of Gold Loan portfolios of NBFCs in the

recent past RBI had brought the permissible LTV ratio to 60 per cent in

March 2012 though it had hinted that it may relax this rule The author has

dealt with the important aspect of Gold Loan, i.e. LTV ration for the

NBFCs and its importance in monetization

Release of Reserve Bank of India's RBI15

KUB Rao Committee report on gold-Working group-p45, suggested that

the three-pronged strategy demand reduction, supply management and

monetization of gold stocks --to deal with the rising gold's importance The

Committee suggested that introduction of gold-linked financial

instruments, gold, bonds and tax incentives on instruments that can

impound idle gold Creation of an alternative asset class that may provide

returns compared to return on investment in physical gold with similar

flexibility is important, it said Gold import is the second major

contributor to the CAD after oil Gold import in April-December stood at

USD 38 billion In 2011-12 fiscal it was USD 56 billion The CAD, which

is the difference between the inflow and outflow of foreign exchange,

widened to a record high of 5 4 per cent of GDP in the July-September

quarter Large gold imports, if unchecked, can potentially threaten the

external stability and, therefore, there is an unambiguous need to moderate

them, RBI report said

Release of Reserve Bank of India's RBI16

To contain gold import, the Government last month hiked import duty on

gold to 6 per cent, from 4 per cent It also linked gold Exchange Traded

Fund ETF with bank gold deposit scheme to enable MFs to unlock their

physical gold and invest in gold-linked schemes offered by banks The

panel further said there is a need to reduce Gold Loan NBFCs' heavy

borrowings from banks so as to reduce their interconnectedness with the

15Release of Reserve Bank of India's RBI KUB Rao committee report on gold-Working group,p45 16 Ibid p77

38

formal financial system gradually There is a need to thoroughly review

the operational practices followed by Gold Loan NBFCs, the panel said,

adding there are concerns on some Gold Loan NBFCs have been raising

public deposits surreptitiously through incorporated bodies It also

suggested that banks may expand their gold jewelry Loan portfolio to

monetize the stock of idle gold and there should not be any limit on

advances against gold jewelry and gold coins by individuals

Nair Vinay and Verma Geeta et.al (201017

stated that in India, the savings

habits of the poor and lower classes differ significantly from the richer

sections While the rich invest their Savings across many different kinds

of assets, the poor continue to invest their savings mainly in gold In fact,

in rural areas, this is often a necessity because of lack of access to banks

Also, there are strong cultural factors at work in India, which make gold

not only a desirable but also a necessary asset to hold Gold is

traditionally a store of value, protecting our savings from inflationary

devaluation It also serves important ceremonial purposes, such as in a

wedding celebration where gold is always the preferred gift The author

highlighted the savings habits of our poor and lower classes in gold, which

can be added advantages in the Loan market that is considered as Loan asset too

George M G Muthoot,18

chairman of India s largest gold company

Muthoot Finance, gave his view on the change in regulation and said,

This move by the apex regulatory body will help the cause of financial

inclusion and is an acknowledgment of the growing significance of gold-

financing NBFCs in fuelling micro-economies in the country This will

help the un-banked rural and semi-urban customers get more value against

their assets and prevent them from going back the Unorganised sector

His statement emphasis on the shifting of consumer from Unorganised to

17Nair Vinay and Verma Geeta 2010 et al Market Survey A study on the attitude towards Gold Loan

Mumbai, India, International global review,p 7

18 Economics Times dated -3-2012 Edited by Joby Puthuparampil Johnson, p8

39

Organised Gold Loan He also pointed out the growing importance of gold

financing

Retrieved from the slide share by Muthoot Finance Ltd.19

Gold Loan triumph

over Personal Loan- 2011 Slide Share the presentation gives an insight about

the growing market of Gold Loan over Personal Loan on the basis of the

following parameters explained below:

PERSONAL LOAN-Heavy in Documentation , Require bank accounts, The

processing time is longer, Credit standing is required, High processing fee,

Hidden terms and conditions present in these policies

GOLD LOAN- Less documentation ,Not necessary, Gold Loans from

companies NBFC like Take only 3 minutes with easy documentation , Not

necessary ,Clear terms and conditions This information from slide share has

given specific inputs on the differentiated factors between Gold Loan and

Personal Loan

Davy et .al 201020

has stated that in the market survey; the Gold Loan is a

simple modification of the Age-old practice of money lenders and has been

institutionalized by the banks now In this Loan, one has to deposit the

household gold in the form of jewelry with the bank or financing Agency and

get a Loan up to 60 per cent of the gold deposited

Retrieved from the Report on Indian Bullion Market (2013).21

It has been explained in the report that the Golden Jewellery soft, yellow,

resistant, the most malleable and ductile metal, occurring in veins and

alluviadeposits and recovered by mining or by panning or sluicing.

good thermal and electrical conductor, gold is generally alloyed

to increase its strength, and it is used as an international monetary standard, i

n jewelry, for decoration, and as a plated coating Money; riches A light olive

19Gold Loan triumph over Personal Loan 2011 . retrieved from on-line ppt of Slide

share www.muthootfincorp.com 20Davy and Nancy 2010 et al

21 Report on Indian Bullion Market (2013). The India Bullion and Jewellers Association Ltd, -p8

40

- brown to dark yellow, or a moderate, strong to vivid yellow. Something

regarded as having great value or goodness: a heart of gold. The American

Heritage Dictionary pointed out the various advantages of gold as metal

Retrieved from the www.managing your money.com22

It has also been stated about the various types of Rate of Interest levied by

Gold Loan lenders To attract and serve different types of borrowers various

types of interest schemes have been introduced This opens market for the

Organised Loan Lenders and all types of borrowers can plan to take Gold

Loans There are various Loan schemes, tenure of the Loan, and minimum to

maximum interest rate provided in general. The various schemes include

True Value Loan, Fair Value Loan, Real Value Loan, Express Loan, Easy

Loan, Super Loan, Gold Loan Installment Scheme, and Gold Loan

Installment Scheme. And the tenure is from 3 /6/9/12 months depending upon

the types of the loan schemes. Even the Rate of interest is from range of

minimum 15% to 24% p.a for some schemes.

Retrieved from CPPR-Centre FOR Comparative Studies Working Paper

Series23

CPPR-Centre for Comparative studies working Paper Series 2013 have

included in the paper that the primary objective of this paper is to study gold

and consumer behavior The respondents were consumers from various

selected gold jewellery outlets in Cochin and Delhi During the course of this

study, the researcher tries to find the various incentives that encourage people

to invest in general, and also the level of awareness and the general attitude

of consumers towards gold as an investment It also studies the Consumer

Behaviour of how people choose to buy gold, when they do and the various

reasons for it From the study it is found out that the demand for gold as an

22

Retrieved from www.managing your money.com 23CPPR-Centre FOR Comparative Studies Working Paper Series 2013 p 16

41

investment is gaining momentum among consumers, especially in Cochin

and Delhi The study also makes it clear that gold is price sensitive at low

prices, but it is insensitive to price increase, especially in Kerala This finding

has a lot of implications when Authorities formulate policies to curb

consumption of gold

Retrieved from www yellowmetal com24

,

It gave the information about the Monetization, further explains that in a

recent development in India, gold has been monetized by which the yellow

metal will be accepted as collaterals for consumer Loans from leading

Financial Institutions In general, such Loans are instant across the counter

Loans requiring minimal documentation The monetization process is

expected to open up the sector and enable the circulation of roughly 18,000

tons worth approximately Rs 30 Lac crores at current prices back into the

economy

Mitra Ajay, Managing Director25

of India, Middle East & Turkey, and World

Gold Council said that Acceptance of gold for Loans by Banks and Financial

Institutions is an important development that will infuse greater confidence in

gold as an asset class While jewelry was being accepted as collateral through

informal channels and Non-Banking, Financial Companies NBFCs for long,

it was primarily not widely offered by banks since only a few banks had the

requisite infrastructure for the procedures to deal with the valuation and

storage of gold However, with banks entering gold bar business,

infrastructure for storage became available and with medallions too being

accepted for securitization purposes, the role of gold is surely bound to

change from commodity to a monetized asset that would encourage

consumers to invest more in gold, a time-tested secure and now a monetized

asset class against gold across all its branches in India Biju Pillai, Executive

24 www yellowmetal com 25India, Middle East & Turkey, World Gold Council www.worldcouncil.com,p 234

42

Vice President and Business Head, PL, Gold Loans, LAS & Home Loans,

HDFC Bank said, We have seen significant growth in our Loan against gold

business over the last two years Gold as a security, benefits the customer

through much lower interest rates and faster Loan process compared to other

forms of credit, while allowing the bank to reach out to newer segments of

customers

Retrieved from RBI ruled in February 2011 that bank credit to NBFCs26

NBFCs had been traditionally disbursing Gold Loans through funds received

from banks under priority lending for the agricultural sector The Loans under

this category enjoy an interest rate discount of approximately 200 bps over

the normal interest rates charged by banks But to reduce the risk in the

system, the RBI ruled in February 2011 that bank credit to NBFCs for

lending against gold jewelry will not be treated as exposure to the agricultural

sector The resulting higher interest rate for funds is expected to promote

better lending practices by NBFCs to creditworthy borrowers

The Reserve Bank of India RBI 27 commented that banks and non-banking

finance companies NBFCs would not be allowed to extend Loans against

units of gold exchange traded funds ETFs and gold mutual funds The move

is aimed at curbing rising demand for the yellow metal During the annual

policy review earlier this month, RBI had told banks to ensure the weight of

any specially minted gold coin did not exceed 50g per customer And, the

amount of Loan to any customer against gold ornaments, gold jewellery or

gold coins, weighing up to 50g, should be within the Board-approved limit

26 RBI ruled in February 2011 that bank credit to NBFCs 27

www yellowmetal com op.sit

43

Retrieved from www.indianbullionandjewellers 28

The India Bullion and Jewellers Association Ltd, 2013 have given details

that in order to standardize the valuation and make it more transparent to the

borrower, it has been decided that gold jewellery accepted as

security collateral will have to be valued at the average of the closing price

of 22 carat gold for the preceding 30 days as quoted by the India Bullion

and Jewellers Association Ltd This is important step by the India Bullion

and Jewellers Association Ltd which will standardize the valuation

Retrieved from Business Standard- Wednesday September 24, 2014 |

11 54 AM IST29

Sitka, Sundeep of Reliance Capital Asset Banks have cleared from RBI

whether an advance against units of gold ETFs Exchange Trade Fund or

gold MFs Mutual funds are permitted As a result, the central bank

clarified that the restriction also applied to such products Banks and MF

houses, however, said the impact would be minimal, as banks did not have

any significant exposure in this sector

Retrieved from Economics Times 21 December, 201430

,

Sitka Sundeep, Chief Executive Reliance Capital Asset Management, said

lending against gold ETFs was not widespread The majority of investors

coming into these funds were retail investors He said that I don t believe

they look to leverage the product in such a manner On an industry-wide

basis, I don t believe that the practice of using gold ETFs to obtain Loans

is of any significant scale, he said

28The India Bullion and Jewellers Association Ltd, 2013 reteieved from www.indianbullionandjewellers. -

p8

29Retrieved from Business Standard- Wednesday September 24, 2014 | 11 54 AM IST

30Sikka, Sundeep of Reliance Capital Asset Management, Economics Times 21 December ,2014

44

Retrieved from www.goldetfs.com,31

Gold ETFs Exchange Trade Fund had assets under management of Rs

11,648 crore at the end of the March quarter according to data from the

Association of Mutual Funds in India Companies accounted for the bulk

of the assets, at Rs 6,345 crore; retail investors were second with Rs 3,124

crore Banks, foreign institutional investors and wealthy individuals

accounted for the remaining amount.

Retrieved from Central Bank of India, Bulletin-Edition 201432

Ram Singapore, general manager, Central Bank of India said that the

Advances against gold ETFs and mutual funds in the retail segment are

negligible

said Ram Sangapure, general manager, Central Bank of India RBI has

further clarified that no advances be given by NBFCs against bullion or

primary gold and gold coins It has also said NBFCs should not grant

advances for purchase of gold in any form, including primary gold, gold

bullion, gold jewellery, gold coins, units of gold ETFs and units of gold

MFs

Retrieved from RBI standardizes Gold Loan Guidelines-India33

The Reserve Bank of India RBI , in the guideline narrated that it had been

decided to prescribe a Loan-to-value LTV ratio of not exceeding 75 per

cent for banks lending against gold jewellery, including bullet-repayment

Loans against pledge of gold jewellery As a prudential measure, it has

been decided to prescribe a Loan to Value LTV Ratio of not exceeding

75 per cent for banks lending against Gold Jewellery including bullet

repayment Loans against pledge of gold jewelry Therefore, henceforth

Loans sanctioned by the banks should not exceed 75 per cent of the value

31Gold ETFs assets management,retrieved from www.goldetfs.com p 6

32Ram Sangapure, general manager, Central Bank of India Bulletin-Edition 2014 VolumnVII-XIXI-p 7 33RBI standardizes Gold Loan Guidelines-India Info Line News Service | Mumbai | January 21, 2014 08 53

IST

45

of gold ornaments and jewellery, the RBI said in a notification to all

banks

Retrieved from RBI standardizes Gold Loan Guidelines-India34

Further the jewellery of lower purity of gold and its valuation had been

explained in order to standardize the valuation and make it more

transparent to the borrower, it has been decided that gold jewellery

accepted as security collateral will have to be valued at the average of the

closing price of 22 carat gold for the preceding 30 days as quoted by the

India Bullion and Jewellers Association Ltd, the RBI added If the gold is

of purity less than 22 carats, the bank should translate the collateral into

22 carats and value the exact grams of the collateral In other words,

jewellery of lower purity of gold shall be valued proportionately, it said

further It is reiterated that banks should continue to observe necessary and

usual safeguards and also have a suiTable policy for lending against gold

jewellery with the approval of their Boards of Directors, the RBI further

said

Titan Company Limited TCL35

formerly known as Titan Industries Ltd

has been operating the Golden Harvest Schemes 11 1 and Swarna Nidhi

Schemes SNS jewellery purchase schemes for its brand Tanishq for

many years now Though both these schemes, lakhs of account holders

have been able to acquire precious Tanishq Jewellery for various

occasions

Retrieve from RBI circular 201436

RBI enacted on the newly companies act 2013which became a law on 1st

April 2014, certain new rules were introduced, specifically under

Explanation to Rule2 1 b of the companies Acceptance of Deposit

34Ibid p 27 35Retieve from www goldenharvest@titan com 36Retieve from RBI circular 2014

46

Rule 2014, which came into effect on 1st April 2014, which appeared to

bring such schemes also under the definition of Public Deposits If

applicable, these rules limited the return that companies could offer

deposit holders to 12 and also capped the total amount of deposits within

25 of their net worth

Retrieved from Economics Times37

that Reserve Bank has requested the

Indian Banks Association and consultation with Indian Institute of

Banking and Finance IIBF to formulate a certificate course for Direct

Recovery Agents which requires with minimum 100 hours of training,

once the above course is introduced by IIBF, banks should ensure that

over a period of one year all their Recovery Agents undergo the above

training and obtain the certificate from the above institute Further, the

service lenders engaged by banks should also employ only such personnel

who have undergone the above training and obtained the certificate from

the IIBF Keeping in view the fact that a large number of Agents

throughout the country may have to be trained, other institutes bank s own

training colleges may provide the training to the recovery Agents by

having a tie-up arrangement with Indian Institute of Banking and Finance

so that there is uniformity in the standards of training However, every

Agent will have to pass the examination conducted by IIBF all over India

Retrieved from www Indian Institute of Banking and Finance com38

Banks can accept gold deposits for a short term 1-3 years as well as

medium term 5-7 years and long 12-15 years term The short term

deposits of gold will be accepted by banks on their own account, while the

medium and long term deposits will be on behalf of Government RBI has

said that banks would have to permit premature withdrawal subject to a

minimum lock-in period and penalty that can vary from bank to bank

Interest on deposits under the scheme will start accruing from the date

37Retrieve from www economicstimes com (June 2012).

38www Indian Institute of Banking and Finance com

47

Retrieved from Economics Times, 22 -2-2016, 39

VP Nandakumar CEO Mannapuram General Finance and Leasing

commented that the Gold Loan aid financial inclusion; financial inclusion

or inclusive financing is the delivering of financial services at affordable

costs to sections of disadvantages and low-Income segments of society.

2.3 Review of Literature Relating to Personal Loan

Personal Loans are sanctioned only after CIBIL status. Credit

Information Bureau India Limited CIBIL is an important tool to the

bankers for determining about their Loan sanctioning The customer

should maintain good credit history The customer needs to maintain their

credit record This article of CIBIL has given details about the procedures

and rules and regulations on the bases of which the CIBIL scores are

allotted and eligibility is granted

Eligibility for Personal Loan 40

Eligibility Criteria plays a major role to apply for a Personal Loan The

eligibility criteria include

Financial background plays a major role as this will be helpful to

understand one s Loan payback ability

Loan lender will also check that one s credit card bills are clear and

Loan users are paying other EMI's timely, in case user has taken up

any Loan earlier

They will also look into the company where users are working

presently

Self-employed consumer has to show their nature of work and Income

level Understanding of these factors makes the procedures hassle free

39 Retrieved from Economics Times, 22 -2-2016, VP Nandakumar CEO Mannapuram General Finance and

Leasing. 40Eligibility for Personal Loan www personal at ease in org,p 56

48

The CIBIL TransUnion Score 2 0 41

is a new, updated version of the

Credit score, which has been designed keeping in, minds the current trends

and changes in the consumer profiles & credit data Banks are gradually

switching to the new version and you may find a difference in the new

version when compared to the earlier version i e , the score 2 0 may be

lower than the earlier version Please note that the score currently

available to borrow is the earlier version However, the difference in the

Credit Score does not impact the credit decision during the Loan approval

process as both the versions of the score may have a different score

eligibility cut off while processing the Loan application For example, if

the Bank earlier used to sanction Loans credit cards to individuals with a

credit score of 800 and above it may now lower its score cut-off, if it has

switched to the new version The information of updated version of the

credit score is covered in this article

The CIBIL TransUnion Score 2 0 42

also introduces a risk index score

range for those individuals who have a credit history of less than 6

months These individuals were categorized under the category of No

History- NH in the earlier version The score range is from 1-5, with 1

signifying high risk and 5 signifying low risk

CIBIL 43

cannot delete or change records reflecting your CIR on its own;

we simply collect records of individuals provided to us by our members

41The CIBIL TransUnion Score 2 0 p 7

42www Credit rating com Op cit p17

43Disputes or Rejections -CIBIL

49

Banks and Financial Institutions There are no good and bad credit

or defaulters lists either

Retrieved from http sahakara kar gov in Moneylender44

The Karnataka Money Lenders Act 1961 and Karnataka Pawn Brokers

Act 1961 came into effect from 29-3-1962 with a view to regulate the

Money Lending and Pawn Broking Business in Karnataka State The

Karnataka Money Lenders Rules, 1965 have been framed and came into

effect from 23-3-1965 Similarly, Karnataka Pawn Brokers Rules 1966

come into effect from 19-7-1966

Retrieved from http sahakara kar gov in Moneylender45

Any person who intends to conduct Money Lending and Pawn Broking

business shall obtain license as per the Section 6 & 4 of the said Acts

respectively, renewable every five years He shall pay the license fee to

Government to the extent of Rs 5000 - for M L and Rs 2500 - for P B

for a period of five years The licensee is required to remit the Security

Deposit to the Government which are as follows depending upon the

turnover he has made - Up to Rs 1 lakh Rs 5,000 - from 1-5 lakhs Rs

10,000 -, from 5-10 lakhs Rs 25,000 -, above 10 lakhs Rs 50,000 -

Charging Exorbitant Interest by the Money Lenders is prohibited As per

Government Notification dated 28-9-2003, they shall not charge more than

14 for secured and 16 for unsecured Loans

44The Karnataka Money Lenders Act 1961 and Karnataka Pawn Brokers Act 1961, retrieved from

http sahakara kar gov in MoneyLend html p45

45Ibid p 77

50

2.4 Review of Literature Relating to Organised and

Unorganised sector in India

The Reserve Bank of India 2006

46 released for feedback the draft

Rules and Regulations under the Credit Information Companies

Regulation Act, 2005 It has requested for comments views to be sent

to the Chief General Manager-in-charge, Department of Banking

Operations and Development, 5th Floor, World Trade Centre,

Mumbai 400 005 on or before April 15, 2006

Retrieved from Information Companies Regulation Act, 200547

It may be recalled that the Credit Information Companies Regulation

Act, 2005 was passed in May 2005 and notified in the Gazette of

India on June 23, 2005 The Act was passed with a view to regulating

credit information companies and to facilitating efficient distribution

of credit and for matters concerned or incidental to it While the

Central Government was empowered to make the Rules, the Reserve

Bank was empowered to make the Regulations to carry out the

purposes of the Act Accordingly, the Reserve Bank has prepared the

Regulations for implementation of the Credit Information Companies

Regulation Act, 2005 and placed them on the website for feedback

Personal Loans are a high risk and high profit segment for Banks48

RBI policy push and rates play an important role in deciding Personal

Loan interest rates as most of the Banks borrow money to give

Personal Loans If the rate gets higher for Banks, they increase rate for

customers With no changes in RBI REPO RATE, most likely the

rates for Personal Loans will remain same The rate at which the RBI

lends or the Repo rate i.e Short-term money to banks remains

46Information Companies Regulation Act, 2005 RBI releases Draft Rules and Regulations for Feedback- 5

Apr 2006 pp1-7

47 Ibid p17 48RBI REPO RATE 2013

51

unchanged at 8 per cent, while the cash reserve ratio, which is the

amount of cash banks are required to deposit with the RBI, stays at

4 75 per cent However, the central bank has cut the Statutory

Liquidity Ratio by 1 per cent to 23 per cent This will increase the

liquidity in the economic system For Banks to lend either they need to

have a strong customer base with accounts and ca or they have to

borrow from other Banks For Banks who lend from internal deposits

these RBI changes have less impact whereas for Banks who disburse

Loan by borrowing from other Banks- these changes have a huge

impact

Retrieved from RBI REPO RATE- 2013)49

It has been observed that already the Inflation rate is high so Reserve

Bank is not towards cutting the rates of interest which may lead to a

higher Inflation There is a slowdown in the economy which may

prompt Reserve bank to reduce rates in near future The other

deterrent factor is monsoon which is weak at this moment so the next

few months will be critical for RBI to decide about rate cuts which

may help in reducing rates So it is not good news but even not a bad

news also- as the rates of Personal Loan will remain same and not get

higher

Bhattacharya Hrishikesh 2005) 50

explained that in India, the decade

beginning saw the culmination of the crisis of the regulated regime

with the worsening of the external balance of payments, a low foreign

exchange reserve, raging inflation and dwindling GNP On the

external front, the signing the General Agreement on Tariffs and

Trade, GATT followed by membership of the World Trade Organist

ion WTO paved the way for global integration Credit Analysis51

What makes a good Loan and what is Borrowers Creditworthy

49 RBI REPO RATE- 2013 op.sit

50 Bhattacharya Hrishikesh 2005 , Banking Strategy, Credit Appraisal and Lending Decisions, p 1 51 Peter S Rose 2002 . Credit analysis - Commercial Bank Management P 117

52

Peter S Rose (2002)52

, Commercial Bank Management, has made

analysis of credit worthiness He described the reason behind that

makes good Loan and how it is beneficial to borrowers He further

explained this credit analysis on the basis of The Six Cs of Lending i e

Character, Capacity, Cash, Collateral, Conditions, and Control

Considering these factors before lending is crucial as it will help to

make the credit worth full

Bhasin Nitin July 2010)53

had stressed on the regulation of the

deposit acceptance activities of NBFCs was initiated in the 1960s with

a view to safeguard depositor s interests and to ensure that the NBFCs

functions on healthy lines According, in 1963, a new chapter III -B

was inserted in the Reserve Bank of India Act, 1934 to effectively

supervise, control and regulate the deposit acceptance activities of

these institutions In 1966, two new directives i.e. the Non-Banking

financial companies Reserve Bank) Directions, 1966 and Non-

Banking financial companies Bank Directions, 1966 were

issued to increase the regulatory powers of the RBI with regards to

NBFCs

Hritshikesh 200554

has given detail about how the credit appraisal is

done and lending decisions are made He further added that with the

recent removal of interest rate ceilings for non-banking financial

companies NBFCs , the interest rates of the economy are virtually

deregulated This deregulation which is result of removal of interest

rate ceiling for non-banking financial companies has resulted in

banking facing stiff competition for funds from the NBFCs The

52 Peter S Rose ,ibid, p.7 53Bhasin Nitin July 2010 . Financial Institutions and financial markets in India pp 72 54Bhattacharya Hrishikesh . BankingStrategy, CreditAppraisal and Lending Decisions, p 3

53

relation between Banks and NBFCs has started becoming more

competitive

Rose Peter 200255

also further explained about the CAMEL rating

According to him all five dimensions of Financial Institutions

performance are combined into one over all numerical rating,

popularly referred to as the CAMELS rating The letters in CAMELS

are derived from

Capital adequacy

Asset Quality

Management quality

Earning records

Liquidity position

Sensitivity toward market risk.

2 5 Review of Literature Relating to RBI Policies and Guideline

on Gold Loan and Personal Loan

Retireved from the Bank to Bank provision As per RBI guide-

lines2011)56

Banks nominated to import gold list of banks as per Annex-4,RBI guide-

lines2011 as per extant instructions may extend Gold Metal Loans to

domestic jewellery manufacturers, who are not exporters of jewellery,

subject to the condition that any Gold Loan borrowing or other non-funded

commitments taken by them for the purpose of providing Gold Loans to

domestic jewellery manufacturers will be taken into account for the

purpose of the overall ceiling presently 50 of Tier I capital c f FED

Master Circular No 5 2012-13 dated July 2, 2012 in respect of aggregate

55Peter S Rose , op sit P 174 56Bank to Bank provision As per RBI guide-lines2011pp 21-26

54

borrowing for non-export purposes The Gold Loans extended to exporters

of jewellery would continue to be out of the 50 ceiling

The Gold Metal Loans 57

provided by banks will be subject to the

following conditions

i The tenor of the Gold Metal Loans, which nominated banks are

permitted to extend to domestic jewellery manufacturers who are not

exporters of jewellery, may be decided by the nominated banks themselves

provided the tenor does not exceed 180 days and the banks policy with

regard to tenor and monitoring of end use of Gold Loan is documented in

the banks Loan policy and strictly adhered to by the banks The above

guidelines will be reviewed in the light of experience gained, and the

performance of the banks in regard to monitoring the end-use of Gold Loans

will be an important factor in deciding upon their future requests for annual

renewal of authorization to import gold silver

ii Interest charged to the borrowers should be linked to the

international gold interest rate

iii The gold borrowings will be subject to normal reserve

requirements

iv The Loan will be subject to capital adequacy and other prudential

requirements

v Banks should ensure end-use of Gold Loans to jewellery

manufacturers and adhere to KYC guidelines

vi Any mismatch arising out of the gold borrowings and lending

should be within the prudential risk limits approved by the

nominated bank s Board

vii The banks should carefully assess the overall risks on granting

Gold Loans and lay down a detailed lending policy with the

approval of the Board

57 RBI guidelines- 2011 , op sit p43

55

Non-banking finance companies NBFCs 58

lending against gold on 7th

January,2014 welcomed a recent move by the Reserve Bank of India to

raise Loan amount against pledged gold, with understanding that this will

facilitate financial inclusion, provide a level playing field in their favor

and deliver more value to customer assets

Retrieved from the press released-59

View on LTV hike, the apex bank on 9th

January, 2014 allowed NBFCs to

lend up to 75 per cent of the value of the yellow metal from 60 per cent

earlier The hike in Loan-to-value LTV - which refers to the amount of

Loan a borrower gets against the pledged gold - has been done in view of

the moderation in the growth of Gold Loan portfolios of NBFCs in the

recent past This move by the apex regulatory body will help the cause of

financial inclusion and is an acknowledgement of the growing significance

of gold-financing NBFCs in fuelling micro-economies in the country, said

M G George Muthoot, chairman of Muthoot Finance, India's largest gold

NBFC

Retrieved from the RBI guidelines statement on LTV Loan to value60

The Reserve Bank of India RBI has raised the Loan-to-value LTV ratio

for the non-banking finance companies lending money against gold to 75

per cent from 60 per cent earlier, so as to facilitate monetization of idle

gold, according to a notification by RBI The norms are expected to bolster

the Loan books growth of the Gold Loan companies

Retrieved from Economics Times views on LTV Loan-to-value61

the

central banks said this is in view of the moderation in the growth of Gold

58Gold Loan NBFCs welcome RBI's move to up Loan-to-value Press Trust of India | Updated On January

08, 2014 59Gold Loan NBFCs welcome RBI's move to up Loan-to-value Press Trust of India | Updated On January

09, 2014 60RBI guidelines- 2011 Op.sit p4 61 Economic Time date 20-01-2009, p 6

56

Loan portfolios of NBFCs in the recent past RBI had brought the

permissible LTV ratio to 60 per cent in March 2012 though it had hinted

that it may relax this rule Shares of top Gold Loans companies like PE-

backed Muthoot Finance and Manappuram Finance rose around 20 per cent

in a flat Mumbai market

Retrieved from the Press Trust of India62

:

The statement of Manipuri Finance s executive Director and Deputy Chief

Executive is that he narrated that the RBI recognizes the need to monetize

idle gold and also to provide a level playing field versa-a-versa banks The

gold finance companies said the move will help customers get maximum

value for their assets Many customers had moved to Unorganised sector

because of lower LTV and now they are expected to come back to the

Organised sector Muthoot Finance managing Director George Alexander

Muthoot.

Know Your Customer' Standards63

The objective of KYC guidelines is to prevent banks from being used,

intentionally or unintentionally, by criminal elements for money laundering

activities KYC procedures also enable banks to know understand their

customers and their financial dealings better which in turn help them

manage their risks prudently Banks should frame their KYC policies

incorporating the following four key elements

i Customer Acceptance Policy;

ii Customer Identification Procedures;

iii Monitoring of Transactions; and

iv Risk management

Retrieved from www.KYC norms.org.in.64

62Gold Loan NBFCs welcome RBI's move to up Loan-to-value Press Trust of India | Updated On January

09, 2014 63 Guidelines on 'Know Your Customer' normsAndAnti-Money Laundering Measures p 7

57

For the purpose of KYC policy, a 'Customer' may be defined as a person

or entity that maintains an account and or has a business relationship with

the bank; 1) one on whose behalf the account is maintained i e the

beneficial owner ; 2)beneficiaries of transactions conducted by

professional intermediaries, such as Stock Brokers, Chartered

Accountants, Solicitors etc as permitted under the law, and any person or

entity connected with a financial transaction which can pose significant

reputational or other risks to the bank, say, a wire transfer or issue of a

high value demand draft as a single transaction

Retrieved from Customer Acceptance Policy CAP -65

Banks should develop a clear Customer Acceptance Policy laying down

explicit criteria for acceptance of customers The Customer Acceptance

Policy must ensure that explicit guidelines are in place on the following

aspects of customer relationship in the bank

i No account is opened in anonymous or fictitious benami name s ;

ii Parameters of risk Perception are clearly defined in terms of the nature

of business activity, location of customer and his clients, mode of

payments, volume of turnover, social and financial status etc to enable

categorization of customers into low, medium and high risk banks may

choose any suitable nomenclature viz level I, level II and level III ;

customers requiring very high level of monitoring, e g Politically Exposed

Persons PEPs - as explained in Annex I many, if considered necessary, be

categorized even higher;

iii Documentation requirements and other information to be collected in

respect of different categories of customers depending on perceived risk

and keeping in mind the requirements of PML Act, 2002 and guidelines

issued by Reserve Bank from time to time;

64www.KYC norms.org.in.

65Customer Acceptance Policy CAP -pp 12-24

58

iv Not to open an account or close an existing account where the bank is

unable to apply appropriate customer due diligence measures i e Bank is

unable to verify the identity and or obtain documents required as per the

risk categorization due to noncooperation of the customer or non-reliability

of the data information furnished to the bank It may, however, be necessary

to have suitable built in safeguards to avoid harassment of the customer For

example, decision to close an account may be taken at a reasonably high

level after giving due notice to the customer explaining the reasons for such

a decision;

v Circumstances, in which a customer is permitted to act on behalf of

another person entity, should be clearly spelt out in conformity with the

established law and practice of banking as there could be occasions when an

account is operated by a mandate holder or where an account may be

opened by an intermediary in the fiduciary

vi Necessary checks before opening a new account so as to ensure that the

identity of the customer does not match with any person with known

criminal background .

Retrieved from Customer Identification Procedure CIP)66

The policy approved by the Board of banks should clearly spell out the

Customer Identification Procedure to be carried out at different stages i e

while establishing a banking relationship; carrying out a financial

transaction or when the bank has a doubt about the authenticity veracity or

the adequacy of the previously obtained customer identification data

Customer identification means identifying the customer and verifying his

her identity by using reliable, independent source documents, data or

information Banks need to obtain sufficient information necessary to

establish, to their satisfaction, the identity of each new customer, whether

66Customer Identification Procedure CIP pp 26-29

59

regular or occasional, and the purpose of the intended nature of banking

relationship Being satisfied means that the bank must be able to satisfy the

competent authorities that due diligence was observed based on the risk

profile of the customer in compliance with the extant guidelines in place

Such risk based approach is considered necessary to avoid disproportionate

cost to banks and a burdensome regime for the customers Besides risk

Perception, the nature of information documents required would also

depend on the type of customer individual, corporate etc

67 For customers that are natural persons, the banks should obtain sufficient

identification data to verify the identity of the customer, his

address location, and also his recent photograph For customers that are

legal persons or entities, the bank should i verify the legal status of the

legal person entity through proper and relevant documents ii verify that

any person purporting to act on behalf of the legal person entity is so

authorized and identify and verify the identity of that person, iii understand

the ownership and control structure of the customer and determine who are

the natural persons who ultimately control the legal person

Customer identification requirements 68

Customer identification requirements in respect of a few typical cases,

especially, legal persons requiring an extra element of caution are given in

Annex-I for guidance of banks Banks may, however, frame their own

internal guidelines based on their experience of dealing with such

persons entities, normal bankers' prudence and the legal requirements as per

established practices If the bank decides to accept such accounts in terms of

the Customer Acceptance Policy, the bank should take reasonable measures

67Ibid p35

68Customer Identification requirement CIR p 17

60

to identify the beneficial owner s and verify his her their identity in a

manner so that it is satisfied that it knows who the beneficial owner s is are

69 Ongoing monitoring is an essential element of effective KYC procedures

Banks can effectively control and reduce their risk only if they have an

understanding of the normal and reasonable activity of the customer so that

they have the means of identifying transactions that fall outside the regular

pattern of activity However, the extent of monitoring will depend on the

risk sensitivity of the account Banks should pay special attention to all

complex, unusually large transactions and all unusual patterns which have

no apparent economic or visible lawful purpose

Retrieved from Notified under section 12 of the PML Act, 20070

The bank may prescribe threshold limits for a particular category of

accounts and pay particular attention to the transactions which exceed these

limits Transactions that involve large amounts of cash inconsistent with the

normal and expected activity of the customer should particularly attract the

attention of the bank Very high account turnover inconsistent with the size

of the balance maintained may indicate that funds are being 'washed'

through the account High-risk accounts have to be subjected to intensify

monitoring Every bank should set key indicators for such accounts, taking

note of the background of the customer, such as the country of origin,

sources of funds, the type of transactions involved and other risk factors

Banks should put in place a system of periodical review of risk

categorization of accounts and the need for applying enhanced due diligence

measures

69Monitoring of Transactions 70Notified under section 12 of the PML Act, 2002,p 9

61

71 Banks should ensure that a record of transactions in the accounts is

preserved and maintained as required in terms of section 12 of the PML

Act, 2002 It may also be ensured that transactions of suspicious nature and

or any other type of transaction notified under section 12 of the PML Act,

2002, is reported to the appropriate law enforcement authority Banks

should ensure that its branches continue to maintain proper record of all

cash transactions deposits and withdrawals of Rs 10 lakhs and above The

internal monitoring system should have an inbuilt procedure for reporting of

such transactions and those of suspicious nature to controlling head office

on a fortnightly basis

Policies and Procedures As per the RBI guide lines72

There will be no change in the existing policy on lending against bullion

Banks should recognize the overall risks in extending Gold Metal Loans

as also in extending SBLC BG Banks should lay down an appropriate risk

management lending policy in this regard and comply with the

recommendations of the Ghosh Committee and other internal requirements

relating to acceptance of guarantees of other banks to obviate the possibility

of frauds in this area The Policies as follows Nominated banks are not

permitted to enter into any tie up arrangements for retailing of gold gold

coins with any other entity including non-banking financial companies co-

operative banks non-nominated banks

Retrieved from Applications for Loans and their processing- As per the RBI

guide line73

Loan application forms n respect of all categories of Loans irrespective of

the amount of Loan sought by the borrower should be comprehensive With

a view to bringing in fairness and transparency, banks are advised that they

must transparently disclose to the borrower all information about fees

charges payable for processing the Loan application, the amount of fees

71KYC, Op sit pp12-25

72Policies and Procedures As per the RBI guide lines

73Applications for Loans and their processing- As per the RBI guide lines

62

refundable if Loan amount is not sanctioned disbursed, pre-payment

options and charges, if any, penalty for delayed repayments if any,

conversion charges for switching Loan from fixed to floating rates or vice

versa, existence of any interest reset clause and any other matter which

affects the interest of the borrower Such information should also be

displayed on the website of the banks for all categories of Loan products

Retrieve from the www RBI guideline com74

Fair Practices Code based on the guidelines outlined in the paragraph 2 5 2

above should be put in place in respect of all lending Banks and Financial

Institutions will have the freedom of drafting the Fair Practices Code,

enhancing the scope of the guidelines but in no way sacrificing the spirit

underlying the above guidelines For this purpose, the Boards of banks and

Financial Institutions should lay down a clear policy

Retrieved from the final guidelines are issued vide our circular

DBOD No Leg BC 75 09 07 005 2007-08 dated April 24, 2008)75

The Board of Directors should also lay down the appropriate grievance

redressal mechanism within the organization to resolve disputes arising in

this regard Such a mechanism should ensure that all disputes arising out of

the decisions of lending institutions' functionaries are heard and disposed of

at least at the next higher level The Board of Directors should also provide

for periodical review of the compliance of the Fair Practices Code and the

functioning of the grievances redressed mechanism at various levels of

controlling offices A consolidated report of such reviews may be submitted

to the Board at regular intervals, as may be prescribed by it

74Fair Practices Code- as per RBI guide-line Retrieve from the www RBI guideline com 75 Ibid p 77

63

Retrieved from the final guidelines are issued vide our circular

DBOD No Leg BC 75 09 07 005 2007-08 dated April 24, 2008)76

In view of the rise in the number of disputes and litigations against banks

for engaging recovery Agents in the recent past, it is felt that the adverse

publicity would result in serious reputational risk for the banking sector as a

whole A need has therefore arisen to review the policy, practice, and

procedure involved in the engagement of recovery Agents by banks in India

In this backdrop, Reserve Bank issued draft guidelines which were placed

on the web-site for comments of all concerned Based on the feedback

received from a wide spectrum of banks individuals organizations, the

draft guidelines have been suitably revised

Method followed by Recovery Agents circular is as follows77

A reference is invited to a Circular DBOD Leg No BC 104 09 07 007

2002-03 dated May 5, 2003 regarding Guidelines on Fair Practices Code

for Lenders b Circular DBOD No BP 40 21 04 158 2006-07 dated

November 3, 2006 regarding outsourcing of financial services and c

Master Circular DBOD FSD BC 17 24 01 011 2007-08 dated July 2, 2007

on Credit Card Operations Further, a reference is also invited to paragraph

6 of the Code of Bank's Commitment to Customers BCSBI Code

pertaining to collection of dues Banks are advised to strictly adhere to the

guidelines code mentioned above during the Loan recovery process

76The final guidelines are issued vide our circular DBOD No Leg BC 75 09 07 005 2007-08 dated April 24,

2008 77Methods followed by Recovery Agents circular DBODleg No BC 104 97 007 2002-03 dated May 5,

2003,Circular DBOD Leg No BC 104 09 07 007 2002-03 dated May 5, 2003 regarding Guidelines on Fair

Practices Code for Lenders b Circular DBOD No BP 40 21 04 158 2006-07 dated November 3, 2006

64

78 In terms of Circular DBOD NO BP 40 21 04 158 2006-07 dated

November 3, 2006 on guidelines on managing risks and code of conduct in

outsourcing of financial services by banks, banks were advised that they

should ensure that, among others, the recovery Agents are properly trained

to handle with care and sensitivity, their responsibilities, in particular

aspects like hours of calling, privacy of customer information etc

Reserve Bank has requested the Indian Banks Association 79

to formulate,

in consultation with Indian Institute of Banking and Finance IIBF , a

certificate course for Direct Recovery Agents with minimum 100 hours of

training Once the above course is introduced by IIBF, banks should ensure

that over a period of one year all their Recovery Agents undergo the above

training and obtain the certificate from the above institute Further, the

service lenders engaged by banks should also employ only such personnel

who have undergone the above training and obtained the certificate from the

IIBF Keeping in view the fact that a large number of Agents throughout the

country may have to be trained, other institutes bank s own training

colleges may provide the training to the recovery Agents by having a tie-up

arrangement with Indian Institute of Banking and Finance so that there is

uniformity in the standards

The Honorable Supreme Court80

also observed that Loans, Personal Loans,

credit card Loans and housing Loans with less than Rupees ten lakh can be

referred to LokAdalats 81 In this connection, banks' attention is invited to

Circular DBOD No Leg BC 21 09 06 002 2004-05 dated August 3, 2004

wherein they were advised to use the forum of Lok Adalats Organised by

Civil Courts for recovery of Loans Banks are encouraged to use the forum of

78Training for Recovery Agents Para 5 7 1 of our Circular DBOD NO BP 40 21 04 158 2006-07 dated

November 3, 2006 on guidelines on managing risks and code of conduct in outsourcing of financial services

by banks

79Indian Institute of Banking and Finance IIBF , Circular1-1- 2012 p 23

80Circular DBOD No Leg BC 21 09 06 002 2004-05 dated August 3, 2004 81 Circular DBOD No Leg BC 21 09 06 002 2004-05 dated August 3, 2004 wherein they were advised to use

the forum of LokAdalats o

65

Lok Adalats for recovery of Personal Loans, credit card Loans or housing

Loans with less than Rupees ten lakh as suggested by the Honorable Supreme

Court

Retrieved from Gold Loans an attractive option for funding Presentation

Transcript LR-Journal82

The journal has the detail on the hike in Interest Rates by the Reserve Bank of

India and the subsequent rise in interest rates by banks and Financial

Institutions, Personal Loans have lost their sheen

Individuals and traders have to spend more in interest costs to meet their

funding needs The steep rise in gold prices recently has driven more

people to satisfy their funding requirements through Gold Loans

Even traders are opting for jewellery Loans or pledging household

jewellery for hassle free and easy Loans

Interest rates with pawn brokers being an expensive affair, people are

approaching banks and Non Banking Finance Companies for their Loan

related needs

This Organised finance sector offers higher value of Loans, which in the

current gold price scenario puts more money in the hands of the

borrower

Hassle free and easy access makes these a quick Loan option when in

need of urgent liquidity Borrowers also save on charges for bank

lockers for safekeeping of their valuables

Rs 40,000- 45,000 Crore is the estimated value of the Organised Gold

Loan sector in India, of which 85 is held by the South Indian segment

With households hoarding significant amounts of the yellow metal, the

Gold Loan market is still under penetrated

82Gold Loans an attractive option for funding Presentation Transcript LR-Journal

66

Gold Loans by Non-Banking Finance Companies and banks are for short

periods ranging from six months to a year However, borrowers re-

pledge their jewellery in order to enjoy longer Loan periods

Some individuals use the borrowed amount to invest in gold coins or make

other gold investments foreseeing a rise in the price of gold With the

current trend in gold prices, this seems to be a good investment option

Non-Banking Finance Companies like Muthoot Fincorp are disbursing

Gold Loans and jeweller Loans for more than 60 percent of the gold

value at attractive interest rates

Retrieved from www.economictimes.com , RBI allows all banks

to deal in retail gold, eases Loan norms.83

The bullion committee and the central bank have acted on a request from

local banks to allow them to extend the existing Gold Loan scheme to

jewellers dealing in the local market only. This will also signal an end to

the monopoly of Bank of Nova Scotia, the world's largest bullion bank, in

the Indian market. Till date, RBI has only permitted the Canadian bank to

give Gold Loans to local jewellers. Other bullion banks like IndusInd

Bank, SBI and Corporation Bank were allowed to trade only with

exporters under the Gold Loan scheme.

Retrieved from Business Standard newspaper article by RBI

RBI allows banks to give gold on Loan to jewellers84

.

The Reserve Bank of India on Wednesday in Business Standard allowed

nominated banks to provide gold on Loan to jewellers. Analysts said all

jewellery shares would open higher on Thursday; their funding cost will

come down. Nominated banks for gold import would now be able to

import the yellow metal on consignment bases. Meaning, they can import

83 Retrieved from www.economictimes.com RBI allows all banks to deal in retail gold, eases Loan

norms. 84 RBI allows banks to give gold on Loan to jewellers, Business Standard Reporter | Mumbai February 18,

2015 Last Updated at 22:46 IST

67

and pay once they actually sell the gold and realise the payment. Banks

can also provide gold on Loan to jewellers. This opens the gold import

route further and addresses the liquidity crunch of jewellers, who were

made to pay the full amount for buying gold since mid-2013. The new

scheme is expected to bridge the gap in the bullion deposit scheme. Under

the deposit scheme, local jewellers were allowed to borrow gold against

jewelleries deposited. Sanjeev Agarwal, managing director, World Gold

Council, said: "Only 10-12 tonnes of gold were traded under the scheme.

As only jewellery in original form was accepted, not melted, they had

limited appeal to local jewellers."

Retrieved from economic times; with the new scheme85

Many intermediaries are expected to go down in the market as local

traders can now directly get gold from banks. The new scheme will also

increase the efficiency of the bullion market as working capital costs will

reduce. Earlier, the local jewellers would borrow money at 10% for their

working capital needs. With gold now available at less than 5% interest,

they can save on interest payment.

2 6 Review of Literature Relating to Consumer Behavior

Hawkins, Best, and Coney (2004)86

and others explain the term consumer

as

the word Consumer who involve himself or herself in buying process has

no question about it- Consumers are paramount to the economy All

marketing decisions are based on assumptions about consumer behavior

In order to create value for consumers and profits for organization,

marketers need to understand why consumers behave in certain ways to a

variety of product and services offered

85 Ibid, economic times 86Hawkins et at

68

87 Hawkins et at , have explained Consumer Behaviour that Consumer

Behaviour is those activities directly involved in obtaining, consuming

and disposing of products and services, including the decision processes

that precede and follow these actions

88 It has been also explain as, The study of individuals, groups, or

organizations and the processes they use to select, secure, use, and dispose

of products, services, experiences, or ideas to satisfy needs and the impact

that these processes have on the consumer and society

Hawkins, Best, and Coney 200489

have stated on Consumer Decision

making process starts with the problem perceiving that identifying the

need for the financial requirement Secondly, after the need and problem

recognition, Borrowers search for appropriate information which gives

more insight about his her requirement Borrower s than evaluate and

assess the available alternatives before arriving at Purchasing decision or

confirming its financial lender and type of Loan capable of Any Decision

made by the borrowers is not complete and satisfactory unless, Post

purchase behavior or consumption or use is not analyzing This helps to

analyse future purchase or sell of the product

Kotler P and Armstrong, G , 200690

has explained the factors influencing

affecting Consumer Behaviour importance and definition of Consumer

Behaviour consumer decision making process, behavior research, behavior

model, guerilla marketing, consumer buying behavior, market

segmentation, consumer buying behavior, strategic marketing, advertising

slogans buyer behavior, Perception, Notes from Philip Kotler

87Ibid p71

88 Ibid p77 89 Hawkins, Best, and Coney 2004 . Consumer Behaviour, p 57

90 P Deniel and Armstrong, G 2006 . Principles of Marketing, Eleventh Edition, Prentice-Hall

69

The Lens Model 91

is being included to understand with reference to Gold

Loan or Personal Loan As the Gold Loan segment is successfully growing

in the market due to the entry of Organised Financial Institution with their

easy process and procedures As per the Lens Model express that most

profiTable products are those that customers perceive as best It is

necessary in product development our goal is to identify customer needs

and to design the product and marketing tactics so that the customer

perceives that the product fulfills the customers needs The basic lessons

of the lens model carry over to the study of consumer behavior Customers

see the world through the lens of Perceptions and their Preferences are

based on those Perceptions Choice is dependent upon customer

Preferences, but other influences, such as availability and perceived price,

also influence the products that customers choose

Consumer Preferences92

Loudon, D L and A.J Della, 2002 )93

have specified about Black Box

Model. The Black Box Model shows the interaction of stimuli, consumer

91John R Hauser, Mitsloan Courseware Note on Consumer Behaviourp 1 92Peter, P J and Olson, J C 2005 . Consumer Behaviour and Marketing Strategy, Seventh Edition, McGraw-

Hill Higher Education 93 Loudon, D L and BittaA J Della, 2002 . Consumer Behavior, Fourth Edition, Tata McGraw-Hill, New

Delhi

70

characteristics, and decision process and consumer responses It can be

distinguished between interpersonal stimuli between people or

intrapersonal stimuli within people The black box model is related to the

black box theory of behaviorism, where the focus is not set on the processes

inside a consumer, but the relation between the stimuli and the response of

the consumer The marketing stimuli are planned and processed by the

companies, whereas the environmental stimulus is given by social factors,

based on the economic, political and cultural circumstances of a society The

buyer s black box contains the buyer characteristics and the decision

process, which determines the buyer s response The black box model

considers the buyer s response as a result of a conscious, rational decision

process, in which it is assumed that the buyer has recognized the problem

However, in reality many decisions are not made in awareness of a

determined problem by the consumer

Kotler, P (2012)94

narrated about the Information processing that it is

susceptible to a consumer s perceptual defenses, namely selective attention,

selective Perception and selective retention It is impossible for consumers

to allocate their time and effort in addressing each bit of information

Therefore, this concept is known as selective attention

Singh et al , 2000 5995

described about Selective Perception which

refers to the way which all consumers, either adults or children, perceive the

information they have given their attention There is a tendency to

manipulate and interpret information into personal meanings that will fit

consumer preconceptions

94Kotler, P (2012), Marketing Management, 11th edition, Prentice-Hall India

95Singh et al , 2000 59

71

Delphi Technique96

Wells W D and Prensky D 2008 describes the process followed in the

Delphi Technique and its detail meaning According to Wells W D and

PrenskyD, Delphi Technique is a structured communication technique,

originally developed as systematic interactive for casting method which

relies on a panel of experts The experts answer questionnaires in two or

more rounds After each round, a facilitator provides an anonymous

summary to the expert s forecasts from the previous round as well as the

reasons they provided for their judgment Thus experts are encouraged to

revise their earlier answers in light of the replies of other members of their

panel It is believed that during this process the range of the answers will

decrease the group will converge towards the correct answer

Conclusion

The literature reviewed by researcher has help to develop in details about

the research topic understanding In the next chapter the researcher had

explained the concepts and termed used in the study

96 Wells W D and Prensky, D(2008) Consumer Behavior, John Wiley & sons, Inc