jinsfull project29-06-12

1Analysis of Gold Loan Business of K.S.F.E

CHAPTER I

INTRODUCTION

In ancient times, Gold was minted into coins and has

been used throughout history as money and has been a relative

standard for currency equivalents specific to economic regions

or countries, until recent times in the ancient past gold coins

were exchanged for import of commodities such as spices and

cottons by the Greeks and Romans. Moreover gold has been

used as investment, as storage of value, making jewellery

dentistry and medical uses. Gold has high thermal and

electrical conductivity properties along with a high resistance

to corrosion and bacterial colorization. Today, like most

commodities, the price of gold is driven by market forces as

well as speculation. However, unlike most other commodities,

saving and disposal plays a larger role in affecting its price

than consumption. Now gold is traded at around $1885 per

troy ounce (1troy ounce = 31.1gm). In the international

market and in India at around 21000 rupees per 8 grams. Most

of the gold evermined still exists in accessible form, such as

bullion and mass produced jewellery, with little value over its

Department of Commerce and Management Studies St. Thomas’ College, Thrissur


fine weight and is thus able to come back on to the gold

market for the right price. At the end of 2008, it was

estimated that all the gold ever mined totaled 1,62,000 tones.

According to the world Gold Council, annual mine production

of gold over the last few years has been close to 2500 tonnes.

About 2000 tonnes go into jewellery or industrial/dental

production and around 500 tonnes go to retail investors and

exchange traded gold funds. This auspicious yellow metal is

creating new business opportunities all over the world such as

gold forward, futures and options, gold exchange traded

products like ETF’s, ETN’s and CEFS which are traded like

shares on the major stock exchanges. Here also, India is not

an exception. All types of Gold related products are available

here and one peculiar characteristic is the existence of thriving

gold loan market in India.

Gold Loan Business in India

Gold loan is a type of loan in which loan amount is

sanctioned against the security of gold with demand and price

of the yellow metal rising loan against gold is also becoming

popular. The facility is for meeting any type of contingent

requirements, thus harnessing the yellow metal which is



usually a ‘non-sweating’ asset for productive purpose.

Largely driven by the unorganized segment in the past, most

whom included the pawn brokers, the gold loan market has

now, started to be driven heavily by the organized segment.

Now the organized gold loan markets in India is estimated

around Rs.35,000-40,000 crore, registering a growth of 50%

over last year.

Why a study like this?

From the above paragraph it is clear that the growth

potential of gold loan market is vast and it is creating more

and more opportunities. Along with gold loan business giant

Muthoot other NBFC’s like Manappuram, Kosammattom and

KSFE and miscellaneous non-banking finance company owned

by the government of Kerala is doing well, even though the

business of KSFE is limited to Kerala region only. But in

order to cope up with drastic changes taking place all over and

to exploit new and new opportunities a study like this is

essential. This study will help KSFE to analyse its gold loan

business in terms of prosperity, market share, profitability,

competition etc.



Statement of the Problem

Kerala is offering a high growth profile gold loan market

to all the players in the gold loan business. In the existing

gold loan market KSFE is doing well. But in the midst of

severe competition the company couldn’t fully exploit the

opportunities in the gold loan market. So, it is worthwhile to

study the gold loan schemes, procedures, terms and conditions

of KSFE, as part of making the company amenable for meeting

the needs and wants of the present gold loan market. The

problem of study is to analyse the gold loan business of KSFE

taking into consideration the data for the past 5 years from

the annual reports of 2005 to 2010, and also by seeking

opinion from gold loan customers through questionnaire.

Importance of the Study

The study is relevant because the gold loan business is

rising continuously. The emergence of stiff competition in the

gold loan business from the privately owned NBFC’s will

make it difficult for a company like KSFE to utilize the

opportunities. So, it is very important to analyse the gold loan

schemes and business of KSFE to survive in the fast growing

gold loan market.



Objectives of the Study

1. To analyse and evaluate gold loan business of KSFE

2. To analyse the profitability and significance of gold

loan business in the loan portfolio of the company

3. To find out the factors influencing gold loan decision

by the customer

4. To understand the influence of fluctuating gold price

on the gold loan business

Scope of the study

The scope of the study lies in the overall evaluation of

the gold loan business of KSFE to make the company to cope

up with the changes in the Gold Loan Market. For this data

from various sources i.e, from annual reports for the period of

5 years from 2005 to 2010 and primary,data from customers

are to be collected

Place of the study

The place of the study is mainly situated in Thrissur at KSFE

Head office, Chembukkavu and in the nearby localities to

understand the customer Perception about Gold Loan business

of KSFE.



Period of study

The study was conducted for a period of 21 days during April-

May 2012

Methodology

The study is based on both primary and secondary data

primary Data: Primary data is the data which are collected as

fresh for the first time by Conducting direct personal

interviews and on the spot situation . In this study

questionnaire method is used to collect primary data from a

sample of 50 respondents.

Secondary Data : secondary data is collected from the annual

reports of KSFE from 2005 – 2010. Data is also collected from

news papers, Magazines, financial journals, and from internet

Sampling method

For collecting primary data convenience method of sampling is

used by visiting the branches of KSFE in Thrissur.

Respondents are identified at Random Sample size – 50

respondents.

Sample unit – Customers of KSFE Gold Loan scheme in

Thrissur Town .



Tools of analysis

The tools used for the purpose of the study are ordinary tools

such as averages, percentages, ratios, comparisons and trend

analysis.

Limitations of the study

1) The period of study s limited to very short period of 21

days. So that an extensive and deep study could not be

possible.

2) In the primary data collection bias of respondents might

be another limiting factor.

3) The comparative study of gold loan business of KSFE

with other enterprises have not been done because the

scale of operation of KSFE is limited to Kerala only,

where others have operations all over the country.

4) The non-availability of latest information (2010-11) is

another weakness of this study.

5) The findings and suggestions are made on the basis of

the analysis made for a period of 5 years only.

CHAPTER – 2



REVIEW OF LITERATURE

Gold is a yellow metal mainly used for making

ornaments. From the ancient times onwards it is used as

‘Money’ on a substitute for money. Gold is also used for

Industrial purpose dentistry, medical uses etc…. Now a days,

its uses are widening as investment medium, store of value and

so on.

Even though, the price of gold is determined by the

market forces of demand and supply. The recent sharp rise in

gold price is due to several other factors, which are as follows;

Reasons for Hike in Gold Price

It is expected that the present hike in gold price will last

for coming three years and in 2015, It will fetch the level of

$3000 per ounce.

The reasons for increase in gold price are;

1) In 1980 the gold price was around $600 per ounce. If

we consider inflation in gold price, it should have been

reached the level of $2400 for ounce at present. But

now, the actual gold price is only $1884.2 per ounce.

This is a cause to increase gold price. So both supply



shortage and gradual increase due to inflation cause price

rise.

2) The Central banks of many countries including India and

China have started to purchase gold now for keeping it as

reserve, after the gap of two decades. This tendency is

still continuing; more over many countries are also

converting their reserves in Dollars to gold. This is

another reason for increase in the gold price.

3) The demand for gold, especially in India and China from

domestic market is shooting up. It also enhances the

gold price.

4) The economic crisis all over the world is worsening. To

overcome this, they have to print currency and for this

gold as a reserve is must. This also increases the gold

price.

5) The gold production is coming down as the gold mines

ore exhausting and discovery of new mines is a big

challenge. Moreover deep gold mining is very much

expensive.

These are some of the reasons for increase in gold price.

Gold Loan Business:



Loan against the security of gold is becoming more and

more popular now a days. Commodity experts feel that since

gold as an asset class earns profit only when sold, it makes

sense to use the metal to take a loan in times of emergency. If

you do not wish to sell it, but need money urgently, then Gold

loan can be a good option. One of the best feature of gold

loan is that you can get the loan on the same day itself. Even

when credit limits have been availed from banks, gold loans

continue to be favoured for its flexibility and hassle free

experience. Also, the interest rate you pay on the gold loan is

comparatively lower than a personnel loan and the chance of

getting gold loan is almost sure. As the average tenure of the

loan is about 90-100 days, both lenders and borrowers feel it

as less risky. Normally, gold loan companies offer loan

against a LTV (Loan to value) ratio of about 75% to 80%

which makes it less risky. Though the interest rate changed

are about 18% to 24% in organized sector and 40%. In the

unorganized sector. People with immediate money

requirement find gold loan product an attractive source of

finance. Minimum documentation and no credit history, makes

the process much easier. Purpose of loan will never be a

question, while issuing gold loan unlike any other bank loans.



All these features of gold loan makes it dependable source of

finance during emergency. Moreover, gold loan is very much

useful for lower and middle income group families. As a large

part of India’s population resides in villages with average

income, the scope of gold loan business in India is wider.

Today about half of our gold loan customers belong to the

farming and small business communities, the traders, shop

keepers and the self employed, who use gold loan for

production purposes. Another interesting fact is that gold loan

is a very good source of working capital to meet day to day

needs. So gold loan is a dependable and easy source of

finance.

According to the report of world gold loan council India

is one of the largest market of gold accounting with about 10%

of gold stock weighing 18000 tons of gold. According to

Manappuram finance limited, the second largest player in gold

loan business, only a 10% of gold available in India is used for

gold loan leaving room for potential business opportunity.

The gold loan business is largely concentrated between two

categories of lenders- south based NBFC’s specialized in gold

loan, accounting for 32% of total market and scheduled



commercial banks holding another 58% of the market. The

rest of the gold loan portfolio is constituted by several small

co-operative banks. In the NBFC sector, Muthoot Finance

Ltd. from Kerala holds the major portion with 60% share of

gold loan business in India.

Kerala State Financial Enterprise

(KSFE), a miscellaneous non banking finance company owned

by the Government of Kerala, is also a major player in the

gold loan business scenario of Kerala. So, the study on gold

loan business in KSFE is relevant due to its potential for

growth and it is being a Kerala government owned enterprise

with social responsibilities.

Lathika Raj (2008) 1 conducted a study on gold loan

business to find out its merits over other loans in banking

sector. In her study, she opined that gold loan business has

wide scope but it is still underutilized by the banking and non-

banking sector. To widen the gold loan business, she

suggested that commercial banks should start special counter

slovenly for gold loan business. In her opinion gold loan

business are more profitable, less risky and less expensive as

far as a commercial bank is considered.



Reshma. T.R. (2009) 2 conducted a study on loans and

advances of KSFE limited. In her study she opined that the

indicator for the success of KSFE is the maintenance of

deposit with significant rate of interest. The company

continued to give high importance to its loans portfolio in line

with its social object. From its very beginning and till now

KSFE is making good profits.

Subash Das (2005) 3 in his M.Phil study conducted a

survey on ‘Risks involved in gold loan business’ by visiting

branches of certain commercial banks and NBFC’s. In his

study, he concluded that, highly fluctuating gold price and less

Karat gold ornaments are threats to gold loan business.

Aswathi. A. (2007) 4 in her M B A project had conducted

a study on credit analysis & effectiveness with special

reference to KSFE. The objectives of the study were to

examine the credit analysis, to know the effectiveness of chit

fund business of KSFE in terms of services and satisfaction,

understanding categories, growth of loans, attitude of

subscribers towards its functioning.

Sharma (2001) 5 in her study made the following

conclusions;



In an era of dynamic economy and hectic competition,

the performance of a financial institution like KSFE is very

important. With respect to number of branches and number of

employees the growth of KSFE is tremendous. The KSFE

started its functioning by conducting only one business, that

is, chit business. Now KSFE is offering a wide variety of

resources to the public such as accepting deposits, providing

housing loan, trade finance gold loan etc which are very

important. KSFE is performing well in terms of

diversification and volume of business. As a public

institution, it has to contribute towards the social and

economic goals. Reason behind the commencement of KSFE

itself is to save the public from exploitation. From the

achievements of KSFE, it is very clear that the performance of

company is good and financial health is moderate which leave

scope for better financial management and eternal vigilance

for customer satisfaction.

Sunil Kumar (2001) 6 in his study concluded that there

exist a good level of customer satisfaction about KSFE. So it

should provide attention to improve the infrastructural

facilities, so as to save the valuable time and cost. In addition



to this, existing products should be modified and new products

should be launched to suit the variety of needs of the

customers. Above all, a human touch in the transactions will

help to earn the customer affection. A product genuinely sold

with customer value will please the customer and the

customers become a continued asset to the organization.

The present report of the working group on Non-banking

financial institutions in Kerala (2005) 7 discussed the

development of KSFE Ltd, particularly in chit business. It

presented the trend and dimensions of deposit mobilized and

various loans provided by KSFE. It attempted a performance

evaluation of KSFE in terms of its market share in chit

business in the registered sector, returns to government,

profitability, market outreach, employment generation

potential etc. The study summarizes that the presence of

KSFE as the only public sector chit company in India serves as

an alternative to the growth of private chit and unregistered

chits. The growing presence of the unregistered chit fund

sector pinpoints the need for more dynamic growth for the

KSFE and wider market out reach.



Shankharyan and Pankaj (1996) 8 while analyzing the

performance of central co-operative bank had examined the

viability aspect of the banks such as credit deposited ratio,

profit and loss, return on shareholders’ equity.

According to Savetha Bahatia and Satish Varma (1999) 9

bank profitability can be measured in several ways, the most

commonly used measure is the ratio of profits earned (net

income after Taxes) and the capital inserted.

Riasker (2003) 10 stated that deposits comprise an

important component of the banks working fund and the

profitability of latter deposits on the cost effective

mobilization of deposits, In fact the profitability of bank is

significantly correlated to the efficient deployment of fund.

Bhaskara (2006) 11 emphasized the significance of

customer service in banks. The banking sector is considered

as a service oriented industry. It has to render manifold

services to the people who visit the banks. Customer services

are central to all business operation. Hence, customer needs to

be treated with sufficient care and attention. He put forward a

lot of strategies and measures to promote customer services.



Julia Ittichan Vazhappilly (1992) 12 has made a study about the

economics of public enterprises. In the study besides

considering the public enterprise as a whole, an attempt is

made to picturise the economies of KSFE too.

From the brief review and documentation of earlier

studies we can see that there is tremendous scope for the

studies in the field of NBFC’s. Hence the study focused on

NBFC’s.

CHAPTER 3

PROFILES

INDUSTRIAL PROFILE



Non-banking financial companies (NBFCS) have

emerged as substantial contributors to the Indian economic

growth by supplementing the efforts of banks and other

development financial institutions. They play key role in the

direction of savings and investment. Non banking financial

companies means companies carrying on the business of

financial institutions and includes business of non banking

finance companies. Non-banking financial company

constitutes, a heterogenous group of financial intermediaries

other than commercial and co-operative banks and they form

an important segment of financial institutions. They raise

deposits from the public directly or indirectly, and lend these

funds to their ultimate spenders. All banking financial

companies play an important role in channelizing the scarce

financial resources for the economic development of the

country.

NBFCS are the intermediaries between the savers and

investors. These companies, are also known as finance

companies, loan companies financial corporations etc. These

companies, with very little capital of their own, have been

raising deposits from public by offering attractive rate of



interest and other incentives. According to the Reserve Bank

Amendment Act 1997, a non banking finance company is

defined as,

A non banking institution which is a company and which

has its principal business the receiving of deposits under

any scheme of arrangements or in any other manner or

lending in any manner.

Such other non-banking institution, as the bank may with

the previous approval of the central government and by

notification in the official gazette specify.

NBFCS provide a range of services such as hire purchase

finance, equipment lease finance, loans, and investment.

NBFCS have raised large amount of resources through

deposits from public, shareholders, directors, and other

companies and borrowing by issue of non-convertible

debentures, and so on.

Non banking financial institutions carry out financing

activities but their resources are not directly obtained

from the savers as debt. Instead, these institutions

mobilise the public savings for rendering other financial

services including investment. All such institutions are



financial intermediaries and when they lend ,they are

known as non banking financial intermediaries( NBFI’s)

or investment institutions.

NBFCs are doing functions, akin to that of banks; however

there are a few differences:

NBFCs cannot accept demand deposits. (demand deposits

are funds deposited at a depository institution that are

payable on demand-immediately or within a very short

period.

It is not a part of the payment and settlement system and

as such cannot issue cheques to its customers.

Deposits insurance facility of DICGC is not available for

NBFC depositors unlike in the case of banks.

In terms of section 45-1a of the RBI Act 1934, it is mandatory

that every NBFC should be registered with RBI to commence

or carry on any business of non- banking financial institution.

The NBFC that are registered with RBI are :-

1. EQUIPMENT LEASING COMPANY

2. HIRE-PURTCHASE COMPANY



3. LOAN COMPANY

4. INVESTMENT COMPANY

With effect from December 6, 2006, the above NBFC

registered with RBI have been reclassified as :-

(a) Asset finance company(AFC)

(b) Investment company(IC)

(c) Loan company(LC)

Non- banking institution frequently acts as:

Suppliers of loans and credit facilities.

Supporting investment in property.

Trading money market instruments.

Funding private education.

Wealth management such as managing portfolio of stocks

and shares: IFC and other obligations.

Retirement planning.

Advice Company in merger and acquisition.

Prepare feasibility, market or industry studies for

companies.

Discounting services. E.g. discounting of financial

instruments.



However, they are typically not allowed to take deposit

from the general public and have to find other own means of

funding their operation such as issuing debt instruments.

COMPANY PROFILE

KERALA STATE FINANCIAL ENTERPRISES LTD.

The Kerala State Financial Enterprise is fully owned by

the Government of Kerala and it is the first public sector

company to conduct chit business in the whole of India. It is a



miscellaneous Non – banking financial company. It was

incorporated on 6 t h November 1969 with its registered office

in Thrissur. It had an authorized capital of 25 lakhs decided in

to 2500 equally shares of Rs.100 each and a paid up capital of

Rs.21 lakhs an initial contribution from Government of Kerala.

KSFE showed profits from its first year of working. Today

with over 42 years of functioning KSFE in having 365

branches and 7 regional offices in Kerala. More than 5000

people work at KSFE and 2 million peoples are associated

with it. A striking point is that all the funds mobilized by

KSFE through its various deposits schemes and chitties are

advanced wholly to public in Kerala itself where as other

financial institution and banks channel their deposit collected

in Kerala for advances outside the state. Financially and

service wise, KSFE contributes immensely towards Kerala

economy. It is presently the biggest chit promoters in Kerala,

and also the most profit making public sector undertaking of

the state. Now it is having 10,700 crores annual business.

MISSION

The Kerala Chitties Act 1975 was brought into with

effect from 25 t h August, 1975 in supervision of the legislation



and with a view to introduce a unified procedure to regulate

the conduct of chit and chit funds in Kerala. KSFE aimed to

socialize the business and to ensure safety, Security and better

service to the public by paying good returns and lending

money at lesser rate of interest. All these are included in the

service philosophy of the company.

VISION

To become a significant player in the financial

service sector by:

Providing a whole range of quality service and

products.

Adopting technology and benchmark standards in

customer service and performance.

Spreading wings beyond the border of Kerala, on a

global level.

Retaining the pre-eminent sale in chit business.

Continuing on extending resources to the

government of Kerala.

Sustaining commitment to the weaker sections of

society, as the neighborhood institution for support,

trust and society.



OBJECTIVE OF KSFE

The major objectives are

To start, conduct, promote, operate, manage and

carry on the business Chitties in India and

elsewhere.

To promote, undertake, organize, conduct carry on

the business and general and miscellaneous

insurance of any kind in India or elsewhere.

To start, promote, conduct, operate carry on and

manage the business of dealers, agents and traders

under the hire purchase system of articles, vehicles,

machinery, materials, goods and tools of all capital

goods and property of all nature and description for

personal, domestic office, commercial, industrial

and community use and consumption as business of

the company or as a agent of Governments state or

central or anybody or organization, there under or

of any other company.

To start, promote, conduct, operate and carry on the

business for providing financial assistance for the

construction of new building and for repairs,



renewals, alteration addition or modification, of

existing building and for self employment schemes.

To provide financial assistance to the hirers or

other for the purpose of running and maintaining

articles, equipment and other items acquired under

hire purchase system of company.

To advance money on security of gold or other

valuable securities.

CONSTITUTION

KSFE is the first public sector undertaking to

conduct chit business in whole of India. The management of

the company is in the hands of directors constituted by the

Governor from time to time. The board shall consist of a

maximum 15 directors other than the managing g director as a

chairman of the board. The general body representing the

share holders in the supreme governing body of the company.

ORGANISATIONAL SET UP

The general administration of the organization and

the business development was initially centralized. However,

the expansion of the business and the multiplication of the



branches throughout the state required decentralization and in

turn regional managers.

The organizational set up is largely a three tier-system

with the head office at the top level as the controlling body.

The regional office at the intermediary level having control of

the units under them and different units at base level, which

are the profit generating centers. These units are engaged in

the chitty business and hire purchase financing as their main

products and acceptance of deposit from the public as parallel

product. In the head office the activities are grouped as

functional as well as product based under the control and

supervision of managing director who is the chief executive.

The company has its head office located at Thrissur and

seven regional office at Thrissur, Calicut, Ernakulam,

Kottayam, Thiruvananthapuram, Kannur and Quilon

controlling its branch network spread throughout the Kerala.



ORGANISATIONAL STRUCTURE OF THE KERALA

STATE FINANCIAL ENTERPRISES LTD


Chairman & Board of Directors

Managing Director (Head Office)

Production Department

Functional Department

Regional Office (Regional) Accounts of

Department


DEPARTMENTS

1) ACCOUNTS DEPARTMENT

The department is headed by the general manager.

The main function includes Planning, budgeting and

control, computation of accounts, financial

management, reconciliation and preparation of

annual accounts.

2) ADMINISTRATION DEPARTMENT


Chitty Department

Hire Purchase Department

Secretarial Department

Administrative DepartmentLegal

Department (Legal)

Medium

Major Small

Functional

Internal audit

Unit


The administration office heads this department. He is in

charge of the personal administration, salary industry

relations, manpower planning etc.

3) SECRETARIAL DEPARTMENT

This is headed by the company secretary, who is

responsible for the function conferred on him by companies

Act 1956. He is also responsible for the general

administration including purchase, printing etc.

4) LEGAL DEPARTMENT

This department headed by the part time legal advisor

assisted by a legal superintendent. He is responsible for the

advising the company on the legal matters and securities.

5) BUSINESS DEPARTMENT

General Manager heads this department. Their main

function are achievement of business target, default collection

and planning.



6) INTERNAL AUDIT DEPARTMENT

Internal audit officer heads this department. Ten assistant

teams will exercise internal checks and audit and thus will

assist the audit officer.

7) GENERAL ADMINISTRATION

A senior manager heads this department and he is

responsible for the general administration including purchase

printing, maintenance of office etc.

BRANCHES

KSFE commenced its business by issuing three chits

from the head office at Thrissur. In April 1970. The

structured growth of company had been unimaginable over the

years. Now it is in the states of big financial institution. The

number of branches of the company in the year 2009-2010 is

365.

Table 3.1 – Growth of Branches of KSFE Ltd.

Year No. of Branches

2005 - 2006 265

2006 - 2007 268



2007 - 2008 270

2008 - 2009 299

2009 - 2010 365

2010-2011 400

Chart 3.1 – Representing the Growth of Branches

2005-06 2006-07 2007-08 2008-09 2009-10 2010-110

50

100

150

200

250

300

350

400

450

Table 3.2 – THE GROWTH OF BUSINESS OVER YEAR

Business2005-

2006

2006-

2007

2007-

2008

2008-

2009

2009-

2010

Chitty

Turnover1786.80 1992.97 2057.77 3641.87 6182.64

Advance 648.00 850.56 987.90 1284.10 1572.11



Total

Deposits1566.12 1696.83 1828.95 2239.75 2931.03

Aggregate

Business4000.92 4540.36 4874.62 7165.72 10685.78

Chart 3.2 – REPRESENTING THE BUSINESS OF KSFE

2005-2006 2006-2007 2007-2008 2008-2009 2009-20100

2000

4000

6000

8000

10000

12000

Chitty TurnoverAdvanceTotal DepositsAggregate Business

PRODUCTS OF KSFE LTD

1) CHITTY

A chitty is conducted by a person or institution and this

entity is called the foreman. In this case of KSFE chitties,

KSFE is the foreman. A chitty is basically a contract between

the foreman and the subscriber. As per the contract, each



subscriber agrees to remit a fixed amount of money every

month for a number of months. The total of the periodic

subscription called chitty amount, will be given out as ‘price

money’ to the person who bids by allowing for maximum

reduction in the price money. The foreman (KSFE) is entitled

to certain percentage of the chitty amount [not more than 5 %

of chitty amount] as his commission from each member.

2) CHITTY LOAN

CHITTY LOAN is a bridge between the customers’ actual

financial needs and the delay in getting chitty in customers

favour. If the customer is a non-prized subscriber in a chitty

and remitted 10 % of the total installments promptly, he is

eligible for an advance up to 50% of the total chitty amount or

sale (gross subscription to be remitted per month multiplied by

the number of installment in the chitty). In the case of 100

months chitties the maximum loan amount will be 30 % of the

advance is settled by the adjustment from the chitty price

money and interest has to be remitted every month. The

interest rate of advance is 16.5 % (simple) and for duplicated

accounts 15.5 %.

3) GOLD LOAN SCHEME



This facility is for meeting any type of contingent

requirement, thus harnessing the yellow metal, which is

usually a non-sweating asset, for productive purpose under the

scheme short-term loan up to 2500000 for maximum period of

12 months are provided on the security of gold ornaments.

But it can be renewed up to aggregate period of 12 months by

remitting interest in every 6 months.

4) PASS BOOK LOAN

A non priced chitty subscriber, without any default in

remittance of installment is eligible for a passbook loan, the

calling of which is based on certain discount from the paid up

amount in the respective chitty. Generally no security other

than passbook is required for it. The interest rate is 13%

(Simple) 15% for default accounts.

5) RELIABLE CUSTOMER LOAN

The customer having a good track record with KSFE LTD

for more than one year is eligible for this advance. The

maximum amount of advance is Rs.1,00,000 on personal and

property Rs.5,00,000 on security of financial document.

6) CONSUMER VEHICLE LOAN (CVL)



CVL scheme helps in acquiring articles such as computers,

motor vehicles, two wheelers, four wheelers, certain durables

medical equipments for clinics, agricultural equipments etc.

The duration of the advance is between 12 months and 16

months. Type of securities acceptable for chitty prize money

are acceptable in the case of CVL also.

7) HOUSING FINANCE

The finance is available for

Building your house

Purchasing of house plots

Renovation of existing house

Person like salaried people, professionals like doctors,

engineers, chartered accounts, lawyers etc can avail this type

of loan.

8) FLEXY TREND LOANS

This is intended to provide financial assistance to small

traders/businessman for supplementing their working capital

requirement with overdraft facility. Ongoing concerns such as

individual partnership firms, companies, Hindu undivided

families, association of person, trust and registered co-

operative societies with a taxable income of Rs 1,00,000



minimum for past three years, having KGST registration, CST

registration and requisite license from the local body are

eligible for the loan.

9) TRADE FINANCE

It is an advance for the small scale traders to enhance their

working capital. Amount is limited up to Rs.1,00,000. The

applicant should have a small scale trading venture. The proof

for the same such as license from the local bodies, lease deed

etc. has to be produced. The manager concerned will conduct

the site inspection to ascertain the location and holding of

stock in trade. The repayment period is 12-60 months.

10) FIXED DEPOSITS

The company mobilizes deposits from the public on paying

attractive rates of interest as a part of its resource

mobilization. The repayment of deposits and the interest rate

due are guaranteed by the Government of Kerala. The annual

interest rate in case of deposits from the public is 9% per

annum and for deposits of prize money from chitties by the

subscribers is 9% .

11) SUGAMA DEPOSIT



This scheme includes maintenance of personal account in

the name of individuals, association etc. in which frequent

deposits and withdrawals are permitted. This will allow the

interest on the monthly minimum balance outstanding in

individual’s accounts from the last working day of each

calendar month.

LIFE INSURANCE AS A CORPORATION AGENT OF LIC

The Life Insurance corporation of India is the only life

Insurance Company in the public sector of India. There are

more than 12 Life Insurance Companies in private sector in

India. Still the majority of the market share (nearly 90%) is

with the LIC of India. LIC was established in the year 1956

and it has become a synonym for Life Insurance in India. LIC

ranks among top ten insurance companies in the world. It has

2048 branches all over India with its head quarters at Mumbai

and divided into 100 divisions under seven zones.

Insurance Regulatory and Development Authority

(IRDA), the controlling body of insurance business activities

in India was set by the IRDA Act, in 1999, IRDA introduced

the concept of corporate agency in the year 2000 by which

corporate bodies like banks, firms, corporative societies can



act as agent of insurance companies to market their insurance

product. This alternative channel of marketing is also known

as “BANCASSURANCE” especially in the western world since

majority of the corporate agents are banks.

WESTERN UNION MONEY TRANSFER

Money transfer here means transfer of money from a

foreign country to India. Transfer with in the country and out

of the country is not permitted under this scheme. The sender

in a foreign country can approach any western union location

for sending money. The details of money so send are to be

transmitted immediately by the sender to the receiver in India.

The money so send can be collected from any of the western

union location nearest to the receiver. At present money

transfer services are available from 207 branches of KSFE

spread all over Kerala.

FEATURES OF KSFE GOLD LOAN

Maximum amount of gold loan has been enhanced

to Rs. 25,00,000 per day.

Normal repayment period is 6 months, which can be

extended up to 12 months.



Interest payable after 30 days each principal

amount can be repaid at any time, at any

denomination.

Interest is charged only on the outstanding amount

remained in the loan account.

Interest rate;

12% up to loan amount Rs.10,000

14% on loan amount from Rs. 10,000 to 25,00,000

Up to 82% of market gold price will be given as

loan in gold loan scheme.

Now, maximum of 2050 per gram on 916 gold

(22ct) and maximum of 2150 per gram on Hall

market gold (24ct), subjects to manager’s decision

will be given as gold loan in KSFE.

New customers can avail this facility by filling an

application form along with electoral I.D. Card.

Existing customers of KSFE needs only to fill the

application form.

Gold loan will be disbursed on the same day of

submitting the application form.

Transaction cost ;

Appraisal fee-2%



(Minimum Rs.25,

Maximum Rs.100

up to loan amount Rs.3,00,000.

For gold loan above 3,00,000, two

appraisal is needed and cost will be

a maximum of Rs.250).

Stamp duty - Rs. 2 stamp is required on gold loan

above Rs.5000

Penal interest rate - 2% on interest rate. (i.e.12.24%

on loan amount up to Rs 10000 and 14.28%on loan

amount above Rs 10000 is charged as interest

thereafter when penalty is imposed.

These all are the features of KSFE Gold Loan

Scheme.



CHAPTER 4

DATA ANALYSIS & INTERPRETATION

Gold Loan Business Analysis.

Table No: 4.1 Gold Loan disbursed (Rs. in Lakhs)

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Gold Loan

disbursed29,799 40,783 46,532 51,078 58,330

Trend

percentage 119 162 185 203 232



(Base year 2005,gold loan Disbursed –25145)

Chart No:4.1 Gold Loan disbursed (Rs. in Lakhs)

2005-06 2006-07 2007-08 2008-09 2009-100

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Gold Loan disbursed

Gold Loan disbursed

Chart No: 4.2

2005-06 2006-07 2007-08 2008-09 2009-100

50

100

150

200

250

119

162

185203

232

Trend analysis of Gold Loan disbursed

Trend percentage(Base year 2005)(gold loan – 25145)



Inference: From the above graphs, it is clear that the gold

loan disbursed in KSFE shows a steady increase. Comparing

the year 2005-2006 the gold loan disbursed actually doubled at

the end of 2009-2010.

Table No:4.2 Percentage of Gold Loan on total loans and

advances (Rs. in lakhs)

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Total

loans and

advances

2,14,026 2,33,525 3,05,175 3,95,996 5,39,226

Gold loan

disbursed29,799 40,783 46,532 51,078 58,330

Percentage

of gold

loan.

14% 17% 15% 13% 11%



Chart No: 4.3

2005-06 2006-07 2007-08 2008-09 2009-100%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Percentage of gold on Total loans and advances

Inference: Gold loan holds significant percentage of total

loans and advances of KSFE. In 2005-06 and 2006-07 gold

loan percentage on total loans and advances was increasing

but later the percentage is decreasing due to the introduction

of new credit products by KSFE. But still Gold loan is

significant in the loan portfolio of KSFE of the 19 items in the

portfolio gold loan itself holds around 12% share of told loans

and advances of KSFE.

Table No:4.3 Interest receipts of gold loan (Rs. in lakhs)

Year 2005-062006-

07

2007-

08

2008-

09

2009-

10

Interest 2850 3456 4682 5858 6855



receipts on

gold loan

Trend

Percentage143 173 235 294 344

(Base year, 2005, Interest received – 1992 lakhs)

Chart No: 4.4

2005-06 2006-07 2007-08 2008-09 2009-100

1000

2000

3000

4000

5000

6000

7000

8000

28503456

4682

5858

6855

Interest receipts on gold loan



Chart No: 4.5

2005-06 2006-07 2007-08 2008-09 2009-100

50

100

150

200

250

300

350

400

143173

235

294

344

Trend analysis of interest on Gold Loan

Trend Percentage(Base year, 2005)(Interest 1992)

Inference: The interest from gold loan shows an increasing

trend. Within the period of 5 years, it has doubled and

reached the level of 6855 lakhs in 2010.The rate of growth is

around 20%, which is an excellent growth rate.

Table No 4.4 Percentage of gold loan interest on total

interest receipts of KSFE

Year2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

Total interest

receipts (lakhs)16199 17353 19850 23887 32038

Gold loan

interest receipts

(lakhs)

2850 3456 4682 5858 6855

% of gold loan

interest on total 17.59% 19.92% 23.58% 24.58% 21.39%



interest receipts

Chart No:4.6

2005-06 2006-07 2007-08 2008-09 2009-100.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

17.59%19.92%

23.58% 24.58%

21.39%

Percentage of gold loan interest on total in-terest receipts

Inference: The above graph shows the percentage of gold

loan interest on total interest receipts of KSFE. Interest

receipts are the major source of revenue to the KSFE (About

55% of total income of KSFE is coming from its various

interest receipts.) Of the total interest receipts, gold loan

interest receipt is around 20% (Average). So gold loan

interest is a major source of revenue to the KSFE. From the

above diagram. It is clear that percentage gold loan interest is

showing an increasing trend only in the year 2009-2010, it is



decreasing. But that is due to the introduction of new items in

the loan portfolio of KSFE. So gold loan interest is a major

source of revenue to KSFE.

Table No: 4.5 Percentage of gold loan interest on total income of KSFE

Year2005-

062006-

072007-

082008-

092009-

10

Total income in lakhs

26833 29462 34840 43278 59395

Gold loan interest in

lakhs2850 3456 4682 5858 6855

% of gold loan interest on

total income of KSFE

10.62% 11.73% 13.43% 13.53% 11.54%



Chart No: 4.7 Percentage of gold loan interest on total

income of KSFE

2005-06 2006-07 2007-08 2008-09 2009-100.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

10.62%11.73%

13.43% 13.53%

11.54%

Percentage of gold loan interest on total income of KSFE

Inference: Gold loan interest alone account t for about 12.5%

(org) of total income of KSFE. Those shows the importance of

gold loan business in KSFE. There are about 20 more

products offered by KSFE. But gold loan alone contribute

more than 12% to the total income. So gold loan business is a

thriving business product of KSFE.



Primary Data Analysis

Table No: 4.6 Percentage of Respondents on the basis of

Age Group

AgeNo. of

RespondentsPercentage

Below 25 1 2

25 – 35 12 24

35 – 45 18 36

45 – 55 18 36

Above 55 1 2

Total 50 100

Chart No: 4.8

2%

24%

36%

36%

2%

Percentage of Respondents

Below 2525 – 3535 – 4545 – 55Above 55

Inference:



The table and chart reveals that the highest number of

customer (36%) belongs to the age group of 35 – 45 and 45

– 55 followed by the age group of 25-35 (24%). the

percentage of persons above 55 and below 25 is 2% each.

From this, we can infer that the KSFE gold loans are more

preferred by middle aged group.


Monthly Income.

Monthly IncomeNo.of


Below 5000 11 22

5000 – 10,000 27 53

10,000 – 15,000 10 20

Above 15000 2 5

Total 50 100



Chart No: 4.9 Percentage of Respondents on the basis of

monthly income

22%

53%

20%

5%

Monthly Income

Below 50005000 – 10,00010,000 – 15,000Above 15000

Inference:

The table and chart reveals that highest number of gold loan

subscribers (53%) in KSFE belongs to the income class of

Rs5000 to Rs10,000 range followed by the below 5000

group (22%). 20% of KSFE gold loan subscribers belongs

to the income class of 10,000 – 15,000.From this we can

conclude that lower income group being the deserving

needy, are more akin to KSFE gold loans.



Table No: 4.8 Percentage of respondents on the basis

of number of times gold loans availed by customers.

Number of timesNumber of


Once

Twice

Thrice

More than Three

4

25

17

4

8.5

49

34

8.5

Total 50 100

Chart No: 4.10 Percentage of respondents on the basis

of number of times gold loans availed by customers.

9%

49%

34%

9%

Number of times

OnceTwiceThriceMore than Thrice

Inference:



The table and chart reveals that 49% of customers has

availed gold loan for two times and 34% availed this service

for three times. From this we can infer that KSFE gold

loanees are frequent customers of it.


purpose of gold loan availed by customers.

Purpose of gold

loan

No. of

Respondents% of respondents

Busines 6 31

Private &

Personal41 56

Repaying another

loan3 13

Others: - -

Total 50 100

Chart No: 4.11 Percentage of respondents on the basis of

purpose of gold loan availed by customers



31%

56%

13%

Purpose of gold loan

BusinesPrivate & PersonalRepaying another loanOthers:

Inference: From the above table and chart we can infer that

the main purpose of KSFE gold loan is private and personal

(56%) followed by Business purpose. (31%)

Table No: 4.10 Percentage of Respondents on the basis

reason for selecting gold loan:

Reason for selecting

gold loan

No. of

Respondents

% of

Respondents

Easiness to get cash

Simple procedure

Difficulty in getting

other loans

15

28

7

31

56

13

Total 50 100




reason for selecting gold loan

31%

56%

13%

Reason for selecting gold loan

Easiness to get cashSimple procedureDifficulty in getting other loans

Inference: From the above table and chart we can infer

that the reason for selecting gold loan instead of other loan

is because of the simple procedure of gold loan (56%). 31%

opined that the reason for selecting gold loan is due to

“Easiness in getting cash”.




reason for selecting KSFE for gold loan:

Reason for selecting

KSFE

No. of

Respondents

% of

Respondents

Less Interest rate

less margin

Quick Access

Confidence in KSFE

Simple procedure

All of these

11

-

9

11

12

7

22

-

18

22

25

13

Total 50 100


Reason for selecting KSFE for gold loan

Less Interest rate 22%

Quick Access18%

Confidence in KSFE22%

Simple pro-cedure

25%

All of these13%

Reason for selecting KSFE

Inference: The reason for selecting KSFE for gold loan is the

lower interest rate offered by KSFE (25%). Quick access and



confidence in KSFE rated at second place of the reasons for

selecting KSFE for gold loan (22% each).

Table No: 4.12 Percentage of respondents on the basis of

opinion about other banks, NBFC’s.

Opinion about other

banks, NBFC’s

No. of

Respondents

% of

respondents

Good

Average

Bad

5

42

3

9

84

7

Total 50 100

Chart No: 4.14 Percentage of respondents on the basis of opinion about other banks, NBFC’s

9%

84%

7%

Opinion about other banks, NBFC’s

GoodAverageBad

Inference:



84% of respondents opined that their opinion about other

banks and NBFC’s in gold loan business is only average. But

9% opined their performance is good and 7% opined their

performance is bad.

Table No: 4.13 Percentage of respondents who opined for

raising gold loan limit from 25 lakhs

Opinion about gold

loam limit

No. of

Respondents

% of

respondents

It should be raised

It need not be raised

3

47

7

93

Total 50 100

Chart No:4.15

7%

93%

Opinion about gold loam limit

It should be raisedIt need not be raised



Inference: 93% of respondent opined that the represent gold

loan limits of 25 lakhs in KSFE need not be raised.

Table No: 4.14 Percentage of respondents on the basis of

opinion about period of gold loan

Opinions period of gold

loan

No. of

respondents

% of

respondents

Up to 6 month

Up to 12 months

more than 12 months

35

14

1

71

27

2

Total 50 100

Chart No:4.16 Percentage of respondents on the basis of

opinion about period of gold loan

71%

27%

2%

Opinion about period of gold loan

Up to 6 monthUp to 12 monthsmore than 12 months

Inference:



The above table and chart reveals that the period of gold loan

should be 6 months (71%) followed by 1 months (27%). But

they are not satisfied with the present practice of payments at

30 days intervals.

Table No:4.15 Percentage Respondents on the basis of

opinion about procedural formalities followed by KSFE

Opinion about procedural

formalities

No. of

Respondents

% of

Respondents

1. Quick and Easy

2. Average Response

3. Too much delaying

28

22

-

56

44

-

Total 50 100

Chart No:4.17 Percentage of Respondents on the basis of procedural formalities

56%

44%

Opinion about Procedural formalities

Quick and EasyAverage ResponceToo Much Delaying



Inference: The above table and chart reveals that the

procedural formalities in KSFE is Quick and easy opined by

majority of Respondents (56%). But 44% opined that the

procedural formalities in KSFE gold loan is having only

average Response.

Table No:4.16 Percentage of respondents on the basis of

opinion about transaction cost

Opinion about

transaction cost

No. of

Respondents

% of

Respondents

A. Reasonable

(Minimum)

B. Un Reasonable

(High)

45

5

91

9

Total 50 100




opinion about transaction cost.

91

9

Opinion about transaction cost

ResonableUnresonable

Inference: From the above table and chart we can conclude

the transaction cost of KSFE gold loan is reasonable

(Minimum) based on the opinion of 91% of Respondents.

Only 9% has inverse opinion. So transaction cost is

minimum.



Table No:4.17 Percentage of Respondents on the basis of

opinion about interest rate.

Opinion about interest

rate

No. of

Respondents

% of

Respondents

A. Reduce by .5%

B. Reduce by 1%

C. Reduce by 2%

D. Reduce by more

than 2%

-

24

22

4

-

49

44

7

Total 50 100

Chart No:4.19 Percentage of Respondents on the basis of

opinion about interest rate.

49%

44%

7%

Opinion about interest rate

reduce by 5%

reduce by 1%

reduce by 2%

reduse by more than 2%



Inference: Even though KSFE is offering less interest

rate for gold loans, the customers are expecting marginal

reduction in interest rate. 49% of respondents have an

opinion of reducing interest by 1% where 44% of respondents

chose 2% reduction. 7% of respondents want more than 2%

reduction in interest. So 1 to 2 percentage reduction interest

rate will satisfy the gold loan customers. So there is

unanimity regarding reduction of interest rate among the

respondents.




opinion about penal interest.

Opinion about penal interestNo. of

Respondents

% of

respondents

Reasonable 36 73

Unreasonable 14 27

Total 50 100

Chart No:4.20

73%

27%

Opinion about penal interest

ResonableUnresonable

Inference: From the above table and chart we can see 73%

of Respondents have positive opinion about penal interest

where 27% are of the opinion that penal interest in KSFE is

high.




opinion about the nexus between rising gold price and

demand for gold loan.

Opinion about Motivated

by rising gold prices

No. of

Respondent

s

% of

respondent

s

Motivated by rising gold

prices40 80

Not-Motivated by rising gold

prices10 20

Total 50 100


opinion about the nexus between rising gold price and

demand for gold loan.

80%

20%

Opinion about Motivation by rising gold prices

Motivated by rising gold pricesNot-Motivated by rising gold prices



Inference: From the above table and chart it is clear that

the rising gold price is have a positive impact on the gold

loans availed by customers, based on the opinion of 80% of

respondents. Only 20% of respondents have inverse opinion

about this. It may be due to the fact that rising gold prices

will enable a person to secure more gold loan amount for

the gold article.


opinion about the rising gold price and advent of more

gold related business activities.

Opinion about rising

gold prices

No. of

Respondents% of respondents

Yes 46 92

No 4 8

Total 50 100




opinion about the rising gold price and advent of more gold

related business activities.

92

8

Opinion about rising gold prices

YesNo

Inference: From the above table and chart we can inform

that the rising gold price will have positive impact on the

multiplicity of gold business based on the opinion of 93% of

respondents only 7% has inverse opinion. So rising gold price

will flourish more and more gold business opportunities.




suggestion about gold loan business carried on by KSFE.

Suggestions about gold loan

business of KSFE

No. of

Respondents

% of

respondents

Satisfied with the present

scheme25 50

Reduce interest rate 20 40

Increase gold loan repayment

period2 4

Provide quick & hassle free

procedure2 4

Enhance gold loan limit 1 2

Total 50 100

Chart No:4.23 Percentage of respondents on the basis of suggestion about gold loan business carried on by KSFE.

Satisfied with

the p

resent sc

heme

Reduce inter

est ra

te

Increase

gold loan re

payment p

eriod

Provide q

uick & hass

le free

proceedure

Enhance gold loan lim

it

0102030405060

5040

4 4 2

Suggestions about gold lon business of KSFE



Inference: From the above table and chart it is clear that

50% of KSFE gold loan customers are satisfied with the

present gold loan scheme of KSFE. 40% suggested to reduce

interest rate only 2% opined to increase present gold loan limit

in KSFE. 4% suggested to increase gold loan repayment

period and another 4% suggested to provide Quick and basic

free procedure.



CHAPTER 5

FINDINGS, RECOMMENDATIONS, CONCLUSIONS

By conducting a project study titled, “ An analysis of gold

loan business of KSFE Ltd, “ based on the primary data and

secondary data of the period 2005-2010, following findings

have been noticed.

FINDINGS:

From the analysis it is found that amount disbursed

under gold loans shows an increasing trend. There is

no provision made for gold loan. During this five year

period it was always at an increasing trend and it has

never slipped downwards.

In the loans and advances of KSFE gold loan business

is very important. Of the 19 items in the loan

portfolio, gold loan business itself holds around 15%

share. So, gold loan business is a very significant

financial product of KSFE Ltd.

The interest receipts of KSFE from the gold loan

business is always showing an increasing trend. It’s



average rate of increase is around 20%. In the total

income of KSFE gold loan interest itself contributes

around 13%. SO it is a major source of revenue to

KSFE.

Middle aged peoples are the major customers of KSFE

gold loan.

Gold loan is frequently used by customers mainly to

meet short term needs.

Simple procedure and easiness in getting cash makes

gold loan more acceptable than other loans.

Less interest rate, Quick access and confidence in

KSFE, attract more and more customers to them.

The present gold loan limit of Rs25 lakhs per

individual per day is satisfactory to its customers.

Even though people are satisfied with the present gold

loan period of six months, they are not in favour for

the current practice of renewal with in thirty days

each.

The gold loan transaction cost and penal interest rate

are reasonable to customers.



Compared to other institutions KSFE is charging less

interest rate but customers are expecting a 1 to 2%

interest rate cut.

The gold loan price has a significant impact on the

gold loan decision by the customers rising gold price

is a stimulating factor for availing gold loan.

The rising gold loan price will flourish more and more

gold business opportunities in the country.

Majority of the customers are fully satisfied with the

present gold loan scheme of the KSFE.

There is a good image about KSFE gold loan among

the customers as KSFE Ltd is a government patronage

organization.

Recommendations:

Increase the gold loan repayment period

Reorganize the present practice of renewal of gold

loan from the present 30 days period to at least 6

months.

Offer more accessibility by opening branches in

rural areas.



Give more importance to advertisements through

medias.

Try to give more value of gold as gold loan.

Try to reduce gold loan interest rate.

Improve infrastructural facilities and give more

importance to gold loan counters.

Maintain good customer relations and keep

informed about important changes through S M S,

other medias etc to customers.

Design special gold loan schemes for different

purposes.

KSFE being a gold loan provider, it is suggested

that with the approval of RBI, Bank Lockers may be

introduced in branches for hiring by customers.

With the consent of RBI, sale of gold coin say, 4

gm, 8 gm, 16 gm, 24 gm etc may be started through

its branches.



CONCLUSION

The study revealed that KSFE is well performing in the

gold loan business. KSFE is a miscellaneous non banking

finance company owned by Government of Kerala and is

having a very good public image. It is giving due importance

to its loan portfolio especially to gold loan. It has an

important role in the economic and social development of

Kerala State. Being a state enterprise, having more social

responsibility, KSFE can render value added services in a

competitive way, so that the exploitative role of private

organizations in similar businesses can be checked to a

possible extent.


jinsfull project29-06-12

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