TABLE OF CONTENTS

SERIAL DESCRIPTION PAGE

NUMBER NO

1 CERTIFICATE I

2 DECLARATION II

3 ACKNOWLEDGEMENT III

4 LIST OF TABLES AND GRAPHS IV

5 LIST OF ABBREVIATION V

6 CHAPTER I 1-

INTRODUCTION

7 CHAPTER II

REVIEW OF LITERATURE

8 CHAPTER III

THEORETICAL VIEW

9 CHAPTER IV

DATA ANALYSIS, INTERPRETATION AND

PRESENTATION

10 CHAPTER V

CONCLUSIONS AND SUGGESTIONS

11 BIBLIOGRAPHY

12 APPENDIX IF ANY WITH PAGE NO

 CHAPTER I
INTRODUCTION
 CHAPTER I
INTRODUCTION

Loan

A loan is a financial agreement where a borrower receives a sum of money from a

lender, which must be repaid over time with interest. Loans can be taken for various
reasons: personal expenses, business purposes, or investments.

 Secured Loan: This type of loan requires collateral (e.g., real estate, gold, car)
to secure the loan. If the borrower defaults, the lender can seize the collateral.
 Unsecured Loan: No collateral is required. The lender assesses the borrower's
creditworthiness, and the loan is granted based on trust and the borrower’s
ability to repay.

Example: A mortgage loan is secured by the house itself, while a personal loan is
typically unsecured.

Credit Facility

A credit facility refers to a range of lending arrangements in which the borrower can
access funds up to a specified limit.

It could be in the form of:

 Revolving Credit (e.g., credit cards)

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  Overdrafts
 Term Credit (e.g., business loans, personal loans)

Difference between Loans and Credit Facilities:

 Loan has Fixed amount and fixed repayment terms.

 Credit Facility has Flexible withdrawal limits and repayments.

Types of Loans

Loans come in various forms, each designed for specific purposes or to meet the
diverse needs of individuals, businesses, or organizations. Below is an overview of
the most common types of loans:

1. Personal Loan
It is an Unsecured loan which is used for personal expenses such as medical bills,
travel, or home improvements.

Features:

 No collateral required.
 Short to medium-term repayment periods (usually 1 to 5 years).
 Higher interest rates compared to secured loans.
 Fixed or variable interest rates.

2. Home Loan (Mortgage)

It is Secured loan which is used to purchase or renovate a home or property.

Features:

 The property being purchased serves as collateral.

 Long-term loan (10-30 years).
 Lower interest rates due to the secured nature.
 Monthly repayments with fixed or variable interest rates.
 Includes options like fixed-rate mortgages and adjustable-rate mortgages
(ARMs).

3. Auto Loan

It is Secured loan specifically for purchasing a vehicle.

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 Features:

 The car or vehicle itself serves as collateral.

 Loan terms typically range from 2 to 7 years.
 Interest rates are generally lower than personal loans.
 Monthly payments are fixed, and the borrower owns the car once the loan is
fully repaid.

4. Student Loan

It is loans designed to help students pay for their education, including tuition,
books, and living expenses.

Features:

 Can be subsidized or unsubsidized (government-backed or private).

 Typically deferred until after graduation.
 Repayment starts after a grace period.
 Low interest rates, especially for government-backed loans.

5. Business Loan

It is Loans used by businesses to fund various needs, such as starting a new

business, buying equipment, or expanding operations.

Features:

 Secured or unsecured options are available.

 Can be long-term (for expansion) or short-term (for working capital).
 Higher interest rates for unsecured loans.
 The business may need to show financial records or a business plan.

6. Gold Loan

It is Secured loans where the borrower pledges gold as collateral.

Features:

 The amount borrowed is based on the current market value of the gold.
 The loan is usually short-term (a few months to a couple of years).
 Interest rates are typically lower than unsecured loans.

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  The gold is returned once the loan is fully repaid.

7. Payday Loan

It is Short-term, high-interest loans meant to cover urgent expenses until the

borrower receives their next paycheck.

Features:

 Unsecured, typically with very high interest rates.

 Repayment is usually due within 2-4 weeks (before the borrower’s next
payday).
 Can lead to a cycle of debt if not repaid on time.
 Often criticized for predatory lending practices.

8. Secured Loan

It is loans that require the borrower to pledge an asset (such as property, car,
or savings) as collateral.

Features:

 Lower interest rates compared to unsecured loans.

 The lender can seize the collateral if the borrower defaults on the loan.
 Often used for larger loans (e.g., home loans, car loans).

9. Unsecured Loan

It is loans that do not require collateral.

Features:

 Based on the borrower's creditworthiness and ability to repay.

 Higher interest rates compared to secured loans.
 No asset is at risk, but failure to repay can severely impact credit scores.
10. Bridge Loan

It is Short-term loan used to bridge a gap in financing, typically in real estate

transactions or business acquisitions.

Features:

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  Used until long-term financing is secured or an asset is sold.
 High-interest rates due to the short-term nature.
 Often used by homeowners buying a new home before selling the old one.

11. Consolidation Loan

It is a loan used to combine multiple debts (e.g., credit card balances,

personal loans) into a single loan with a lower interest rate.

Features:

 Reduces the complexity of managing multiple debts.

 Often unsecured, but can be secured if the borrower offers collateral.
 May help to lower monthly payments or extend the repayment period

12. Construction Loan

It is short-term loan used to finance the construction of a building or

property.

Features:

 Typically, short-term (1-3 years).

 Funds are disbursed in stages based on the completion of different phases of
construction.
 Usually converted to a long-term mortgage once construction is completed.

13. Microloan

It is small loans typically offered to entrepreneurs or individuals in

developing countries to start or expand a small business.

Features:

 Typically for amounts of a few hundred to a few thousand dollars.

 Often provided by nonprofit organizations or government programs.

 Interest rates are typically low, but repayment terms may vary.

14. Debt Settlement Loan

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 It is a loan used to pay off debt to settle outstanding balances with creditors,
usually at a reduced amount.

Features:

 Often used by individuals with significant debt issues.

 Helps to avoid bankruptcy by negotiating lower payments with creditors.

 Can affect the borrower’s credit score and financial future.

15. Line of Credit

It is A flexible loan that allows the borrower to withdraw funds up to a

certain limit as needed.

Features:

 Can be secured (e.g., home equity line of credit) or unsecured (e.g., personal
line of credit).

 Interest is charged only on the amount borrowed, not the entire credit limit.

 Revolving nature — once repayment is made, funds can be borrowed again.

 Often used for ongoing needs like business operations or home repairs.

16. Fixed-Rate Loan

It is A fixed-rate loan is a loan where the interest rate remains the same for
the entire term of the loan, ensuring predictable monthly payments. It is one of
the most common types of loans used for purchasing homes, vehicles, and for
personal use.

History Of Loan Facility as per Global perspective

A. Ancient Civilizations and the Origins of Lending (3000 BCE - 500 BCE)

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 The practice of lending money has been around for millennia, with its roots
tracing back to ancient civilizations where moneylending was essential for
economic activities like trade, agriculture, and the development of cities.

1. Mesopotamia (3000 BCE - 1500 BCE)

 The first known records of lending date back to Sumerians in Mesopotamia,

where they developed a system of credit and debt management. In these
ancient societies, temples and palaces acted as the first financial
institutions, offering loans to farmers, traders, and artisans.

 Laws of Hammurabi (circa 1754 BCE) from Babylon are some of the earliest
records of formal lending practices. These laws regulated interest rates,
collateral, and loan repayment, marking a significant milestone in the
development of loan systems.

2. Ancient Egypt (2000 BCE - 1000 BCE)

 Agricultural Loans: In ancient Egypt, grain loans were commonly given to

farmers, with repayment expected after harvest.

 Temple-based Lending: Similar to Mesopotamia, temples acted as early

financial centres, providing credit for agricultural production and trading
activities.

3. Ancient Greece and Rome (500 BCE - 476 CE):

 In Ancient Greece, moneylending was also prevalent, but it was often linked
with moral and religious concerns. For instance, in some Greek city-states,
moneylending was considered a sin, and lenders were seen as exploiting
the poor. However, it was widely practiced in cities like Athens, where
lenders would provide loans with interest for agriculture and trade.

 The Romans refined lending systems with the introduction of contracts and
the formalization of interest rates. The Roman Empire was known for
creating structured laws around debt repayment, establishing the concept
of collateral and legal obligations for both borrowers and lenders.

 The Roman Empire introduced more sophisticated methods of handling debt,

including guarantees and collateral, ensuring that debt repayment could be
enforced.

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4. Medieval Europe (5th - 15th Century):

 In Medieval Europe, the Catholic Church’s stance on usury (charging interest

on loans) made lending practices complex. According to the Church,
charging interest on loans was a sin, which led to religious restrictions on
loan practices. However, Jewish communities were often involved in
moneylending because they were not bound by these restrictions.

 Jewish moneylenders were often the primary providers of credit during the
medieval period, lending to both individuals and monarchs. This practice
was vital for financing wars, trade, and the construction of major public
works.

B. The Renaissance and Early Modern Period (14th - 17th Century):

 The Renaissance period saw a revival of lending and credit systems in

Europe, spurred by the growing need for capital in commerce and trade.
The establishment of banks like the Medici Bank (established in the 14th
century) was a pivotal moment in the history of loans. The Medici family,
for example, provided loans to merchants and the Catholic Church itself.

 Commercial banking began to take root, and the creation of bills of exchange
allowed merchants to finance long-distance trade. By the 17th century,
public lending became more organized, and the first formal national banks
were created to provide credit to the government and the public.

 Public Debt: Governments began to borrow money in the form of public

debt. The Bank of England (1694) was established to manage national
finances and facilitate loans to the government.

C. Industrial Revolution and the Formation of the Modern Banking System

(18th Century - 19th Century)

1. Industrial Revolution (18th - 19th Century):

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  The Industrial Revolution (late 18th to early 19th century) transformed
economies around the world. With rapid industrialization, demand for
large capital investments grew. This spurred the growth of modern
commercial banks and the widespread use of loans for businesses,
infrastructure development, and personal consumption.

 In this era, the concept of unsecured loans began to take shape. People could
borrow money for personal use or to finance their businesses without the
need to pledge assets. This was especially important in Europe and the
United States, where growing middle-class populations had access to
credit for the first time.

2. Banking Institutions and Credit Expansion

 Development of Secured Loans: With the increasing value of assets like

factories and real estate, secured loans became more common. Borrowers
could pledge property or machinery as collateral to secure financing for
business ventures.

 Emergence of the Modern Credit System: Commercial banks started offering

credit lines and overdraft facilities, enabling businesses to manage cash
flow and expand operations.

3. Rise of Government Loans and Bonds

Government Borrowing: As governments expanded their roles, they began

issuing government bonds to raise funds. The Bank of England and other
central banks played a key role in facilitating national debt and providing
loans to support public projects.

4. The Establishment of Central Banks (19th Century):

 The Bank of England, established in 1694, became one of the first modern
central banks, formalizing the process of loaning money to governments
and businesses. As other countries followed suit with their own central
banks (e.g., the Federal Reserve in the U.S. in 1913), the global banking
system grew more structured, and governments began to rely on loans as a
means of financing wars, public works, and economic growth.

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  The 19th century saw the emergence of international loans facilitated by
global trade and communication networks. These loans were often used for
large infrastructure projects such as railroads, canals, and urban
developments.

D. The 20th Century: Global Expansion of Loans and Credit Facilities

1. Post-World War Economic Rebuilding

 World Wars and Debt: The aftermath of both World War I and World
War II saw significant government borrowing to rebuild war-torn
economies. The World Bank (founded in 1944) and the International
Monetary Fund (IMF) became central to providing loans to developing
countries and war-stricken nations.

 Development of Consumer Loans: The mid-20th century saw the rise

of consumer loans, with individuals borrowing for homes, cars, and
education. Credit cards and personal loans became widely available in
developed countries.

2. Global Financial Institutions

 Global Lending: Major global financial institutions, including

commercial banks, international financial institutions (IMF, World
Bank), and development banks, began to shape global credit systems.
These institutions provided loans to both governments and businesses
worldwide, leading to the globalization of loan facilities.

3. The 20th Century and the Growth of Consumer and Corporate Loans

 The 20th century marked the true global expansion of loans and credit
facilities. After World War I and World War II, governments and
businesses turned to loan facilities to rebuild economies.

 Consumer loans, including mortgages, auto loans, and credit cards,

became widely available by the mid-20th century. The establishment
of major credit card companies, such as Visa (1958) and Mastercard
(1966), made consumer credit accessible on a global scale.

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 E. The 21st Century: Digital Revolution and New Credit Models.

1. Digital Lending and FinTech

 Rise of Digital Lending: The advent of the internet and mobile

technology in the 21st century revolutionized lending. FinTech
companies now provide peer-to-peer lending and crowdfunding as
alternatives to traditional bank loans. Borrowers can apply for loans
via mobile apps, bypassing traditional banks and reducing reliance on
credit scores.

 Microfinance Revolution: Institutions like Grameen Bank (founded in

1976 by Muhammad Yunus) popularized microfinance, offering small
loans to impoverished individuals, especially in developing countries.
This model aimed to provide credit to people without access to
traditional banking services.

2. Cryptocurrency and Blockchain

Crypto-backed Loans: With the rise of cryptocurrencies like Bitcoin, new

types of loans are emerging. Some platforms offer loans backed by digital
assets, enabling people to use their cryptocurrency holdings as collateral for
loans.

3. Global Credit and Inclusive Lending

 Financial Inclusion: The focus of modern lending has shifted towards

financial inclusion, aiming to provide loans to underserved
populations, particularly in developing regions where access to formal
banking is limited.

 Peer-to-Peer Lending: Platforms such as Lending Club and Prosper

provide an alternative to traditional bank loans, where individuals can
borrow money directly from other individuals or investors.

History Of Loan Facility in India

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 The history of loan facilities in India spans several millennia, evolving from ancient
barter systems to the complex financial structures of today. India has seen significant
developments in credit systems, from the ancient times when loans were given for
agricultural purposes to the modern era of banking systems, microfinance, and digital
lending. The journey reflects both the socio-economic needs of each era and the
influence of global financial practices.

A. Ancient and Medieval India: Informal Lending and Agricultural Credit

1. Ancient India (circa 3000 BCE - 500 BCE)

In ancient India, the concept of lending and borrowing was an essential

part of economic life. However, most of the transactions took place in a
non-monetary form, primarily within agricultural and barter systems.

 Vedic Period (1500 BCE - 500 BCE): During the Vedic era, loans were often
given in the form of grain or livestock for agricultural purposes. These
loans were typically informal agreements between individuals, often with a
focus on the reciprocal nature of transactions.

 Kautilya's Arthashastra (4th Century BCE): The famous treatise on statecraft,

economics, and military strategy by Chanakya (Kautilya) provides some of
the earliest references to credit systems in ancient India. It mentions the
role of moneylenders (called Sarthavahas) who lent to merchants and
farmers with an agreed-upon interest rate. The interest rates varied
depending on the purpose and the region.

 Laws of Manu: In ancient texts like the Laws of Manu, there were specific
mentions of usury (charging interest) and debt recovery, indicating that
loan contracts and lending practices were formalized to some extent.

2. Medieval India (500 CE - 1500 CE)

During the medieval period, the practice of moneylending continued to

evolve, with the introduction of gold coins and money markets in many
parts of the country.

 Islamic Influence: The Islamic period brought the concept of Islamic finance,
which prohibited usury (riba). Moneylending during this period in Indian

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 subcontinent was influenced by Sharia law, leading to a shift toward
profit-sharing models and the rise of joint ventures (like mudarabah and
musharakah). Islamic moneylenders (called sarrafas) played a major role
in financing trade and commerce during this period.

 Hindu Merchants and the Role of Jain and Marwari Traders: Jain traders and
Marwari businessmen emerged as major financiers in medieval India,
providing loans to various industries, including agriculture, trade, and
crafts. These communities provided both secured and unsecured loans,
primarily within their own communities, and acted as intermediaries in the
movement of capital across regions.

B. Colonial India: The Formation of Formal Lending Systems (1600 CE -

1947 CE).

1. The East India Company and the Early Banking System (1600 CE -
1800 CE)

During British colonial rule, the East India Company began to establish a
more formalized banking and credit system. Moneylending, which had
been mainly done by local traders, started to be institutionalized, and
colonial policies laid the foundation for the modern financial sector.

 State and Commercial Banks: The first European-style commercial banks

were established during British rule. For example, the Bank of Bengal,
established in 1806, was one of the first public banks to extend credit
facilities, primarily to the British government. British commercial banks
began to dominate the credit market in urban areas, and moneylenders
(especially shroffs) continued to serve the rural population.

 The Arrival of the British Government: The British colonial government

used loans to fund the expansion of infrastructure (such as railways and
roads), through the issuance of government bonds and the establishment of
formal banking systems to fund trade and military expenditures.

2. The Rise of Moneylenders and Formal Credit in Rural India

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 While the urban areas witnessed the rise of formal banks, the rural
economy in colonial India remained largely dependent on traditional
moneylenders, often charged exorbitant interest rates. These rural
moneylenders held significant power over agricultural communities, and
debt slavery was common among poor farmers.

 Colonial Financial Practices: The British colonial economic policy often

forced Indian farmers to pay taxes in cash, which they could not always
raise through their agricultural production. As a result, many small farmers
had to turn to moneylenders, creating a vicious cycle of debt.

 The First Indian Banks: Despite colonial exploitation, several Indian

entrepreneurs took the initiative to create formal banks. The Bank of India
(1906), Punjab National Bank (1894), and the Reserve Bank of India
(RBI) in 1935 were among the first formal banking institutions to lend to
Indians in the modern sense.

C. Post-Independence India: Growth of the Formal Banking Sector (1947

CE - 1991 CE)

1. Nationalization of Banks (1969)

After India gained independence in 1947, the newly formed government

undertook significant reforms to ensure that the financial system served the
needs of the Indian people, particularly farmers, small businesses, and
entrepreneurs.

 Nationalization of Major Banks (1969): The government nationalized 14

major commercial banks in 1969 to align the banking sector with the goals
of the socialist-oriented economy. The aim was to channel credit to the
agricultural sector and weaker sections of society.

 Priority Sector Lending: The nationalized banks were instructed to extend

loans to the priority sectors—such as agriculture, small-scale industries,
and housing—with lower interest rates. The Indian government used this
move to reduce the dominance of private moneylenders and provide credit
to sectors that had previously been excluded from formal finance.

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  Expansion of Cooperative Banks: Cooperative credit societies and
cooperative banks also emerged as an important source of rural finance,
particularly for farmers, during this period. These institutions extended
loans for agricultural and non-agricultural purposes in rural areas.

2. Economic Liberalization (1991) and Financial Reforms

In 1991, India underwent a major economic liberalization, and the

financial sector was opened up to global players. This led to the
modernization of India’s banking and financial systems.

 Private Banks and Foreign Banks: With the liberalization of banking

policies, new private sector banks and foreign banks entered the Indian
market. Technology-driven banking also emerged, making loan facilities
more accessible through ATMs, internet banking, and mobile banking.

 Microfinance Institutions (MFIs): The concept of microcredit gained

momentum with the rise of microfinance institutions (MFIs), such as
Grameen Bank model. MFIs provided small loans, primarily to rural
women and the poor, to help them start businesses and improve their
livelihoods.

D. Modern-Day India: The Digital Revolution and Financial Inclusion (2000

CE - Present)

1. Expansion of Consumer and Business Loans

In recent years, India has witnessed a boom in consumer credit, driven by

consumer loans, credit cards, and home loans. The digital revolution has
enabled banks and financial institutions to offer faster and more
convenient loan products to individuals and businesses.

 Personal Loans, Car Loans, and Home Loans: The rise of middle-class
India and changing consumer behaviours has led to a greater demand for
personal loans, car loans, and home loans. Government schemes like
PMAY (Pradhan Mantri Awas Yojana) have further encouraged lending
for housing purposes.

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  Credit Cards and Online Lending: The advent of credit cards in India,
coupled with digital platforms and FinTech apps, has increased access to
unsecured loans for a broader section of the population. Companies like
Paytm, Razorpay, and CRED are revolutionizing how loans are given and
repaid through technology-based platforms.

2. Financial Inclusion and Microfinance

The Pradhan Mantri Jan Dhan Yojana (PMJDY), launched in 2014, was a
major step toward financial inclusion, aiming to provide bank accounts
and access to credit for the unbanked population, particularly in rural
areas.

Microfinance continues to play an essential role in providing small loans

to the rural poor, with a focus on women empowerment and
entrepreneurship.

3. Digital Lending Platforms and Peer-to-Peer Lending

The rise of FinTech companies and peer-to-peer (P2P) lending has

reshaped the loan landscape in India. Platforms like LendingKart, Faircent,
and LenDenClub allow individuals and businesses to access loans without
the need for traditional banks. These platforms use data analytics and AI
algorithms to assess creditworthiness and offer loans in real time.

So, according to the history of loan facilities in India is a tale of gradual

evolution from informal credit in ancient and medieval India to the
establishment of formal banking systems post-independence. The banking
sector has undergone substantial reforms, culminating in an era of digital
lending and financial inclusion. India continues to innovate in its approach
to providing credit, with a focus on microfinance, technology, and
inclusive financial services. The country’s transition from a largely
agrarian society to a digital economy reflects the adaptability of India’s
credit systems to meet the changing needs of its population.

Loan Institutions

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 Loan institutions are entities or organizations that provide loans to individuals,
businesses, or other entities, usually in exchange for repayment with interest over a
specified period. These institutions play a critical role in financial systems by
ensuring the efficient distribution of capital to meet the borrowing needs of different
sectors of the economy.

In India, loan institutions have evolved over time, adapting to changing economic
needs, government policies, and financial innovations. There are various types of loan
institutions, each offering different types of credit products, ranging from home loans
to business financing.

Types of Loan Institutions in India

1. Commercial Banks

Commercial banks are the most common type of financial institutions that
provide loans. They offer various loan products, including personal loans,
home loans, car loans, education loans, business loans, and credit cards.

 Public Sector Banks: These banks are owned by the government. They
account for a significant portion of loans in India.

Examples: State Bank of India (SBI), Bank of Baroda (BoB), Punjab

National Bank (PNB), Canara Bank, and Union Bank of India.

 Private Sector Banks: These are privately owned banks that provide a wide
range of banking services and loans. They generally have a more
customer-friendly approach and offer competitive interest rates.

Examples: HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank,
and IndusInd Bank.

 Foreign Banks: Foreign banks operate in India with branches or

subsidiaries, offering a variety of loan products, typically with an
international focus.

Examples: Citibank, Standard Chartered Bank, HSBC, and Deutsche

Bank.

Services Provided by Commercial Banks:

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  Personal Loans: Unsecured loans for personal needs like medical expenses,
vacations, or emergencies.

 Home Loans: Loans for purchasing, constructing, or renovating a home.

 Car Loans: Loans for purchasing a car.

 Business Loans: Loans for small and medium-sized enterprises (SMEs) and
large businesses for capital expenditure, expansion, and working capital.

 Education Loans: Loans for higher education, both in India and abroad.

2. Cooperative Banks

Cooperative banks in India function under the cooperative societies’ law and
provide loans to members, usually at lower interest rates than commercial
banks. These banks aim to promote financial inclusion and support farmers,
rural populations, and cooperative societies.

 Urban Cooperative Banks: These banks cater to the urban population and
offer personal loans, home loans, and business loans to their members.

Examples: The Shamrao Vithal Co-operative Bank (SVC Bank), Mumbai

District Central Co-operative Bank.

 Rural Cooperative Banks: These banks focus on providing agricultural loans

and other credit facilities to farmers and rural businesses.

Examples: The Maharashtra State Co-operative Bank.

Services Provided by Cooperative Banks:

 Agricultural Loans: Loans for farmers to purchase seeds, fertilizers,

machinery, and for irrigation.

 Short-Term Loans: For farmers to cover seasonal costs.

 Long-Term Loans: For agricultural development, including land purchase

and infrastructure development.

 Consumer Loans: For home loans, personal loans, etc.

3. Regional Rural Banks (RRBs)

Regional Rural Banks were established by the Government of India with the
aim of providing financial services to rural and semi-urban areas. They focus

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 on the rural economy and provide loans to farmers, small businesses, and
individuals in rural areas.

Examples:

 Andhra Pradesh Grameena Vikas Bank.

 Uttar Bihar Gramin Bank.

RRBs are jointly owned by the government (Central Government, State

Government), and commercial banks, with the majority stake held by the government.

Services Provided by RRBs:

 Agricultural Loans: Loans for farming activities such as cultivation and crop
production.

 Livestock Loans: Credit for buying livestock and supporting livestock-related

businesses.

 Microfinance Loans: Small loans for entrepreneurs, especially for setting up

microenterprises.

4. Non-Banking Financial Companies (NBFCs)

NBFCs are financial institutions that provide loans and other financial
services without holding a banking license. They are regulated by the Reserve
Bank of India (RBI). They offer a wide range of services, including loans to
businesses, housing loans, and vehicle financing.

Types of NBFCs:

 Asset Finance Companies (AFCs): Provide loans for purchasing assets like
vehicles and machinery.

 Loan Companies: Offer personal loans, business loans, and other types of
credit.

 Investment Companies: Deal with the investments of individuals or

businesses.

 Microfinance Institutions (MFIs): Offer small loans to low-income

individuals and households, typically for self-employment.

Examples:

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 Muthoot Finance (known for gold loans).

 Bajaj Finserv (provides personal loans, home loans, and insurance).

 Mahindra Finance (provides vehicle loans, home loans, and SME loans).

Services Provided by NBFCs:

 Personal Loans: Loans for individuals to meet personal needs.

 Gold Loans: Loans against gold jewelry or coins.

 Vehicle Loans: Loans for purchasing cars, motorcycles, and commercial

vehicles.

 Business Loans: Loans for businesses for working capital, expansion, etc.

5. Microfinance Institutions (MFIs)

Microfinance institutions (MFIs) are specialized institutions that offer small

loans to the poor and low-income individuals who do not have access to
traditional banking services. MFIs typically focus on providing loans to
women and self-help groups to support their entrepreneurial activities.

Examples:

 SKS Microfinance (now Bharat Financial Inclusion Limited).

 Ujjivan Small Finance Bank.

Services Provided by MFIs:

 Small Loans (Microcredit): Typically, these are low-value loans given to

individuals or groups for income-generating activities.

 Income-Generating Loans: Loans for small businesses, handicrafts, and

agriculture-based activities.

 Women Empowerment Loans: Special loans targeting women entrepreneurs

to help them establish small businesses or improve their livelihoods.

6. Development Financial Institutions (DFIs)

Development Financial Institutions are specialized financial institutions

established by the government to provide long-term financing to the industrial

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 and infrastructural sectors. DFIs play a crucial role in the development of key
sectors like agriculture, industry, and infrastructure.

Examples:

 Industrial Development Bank of India (IDBI) – Initially a DFI, now a

commercial bank.

 Small Industries Development Bank of India (SIDBI) – Focuses on the

financial needs of small-scale industries.

 National Housing Bank (NHB) – Specializes in housing finance.

Services Provided by DFIs:

 Industrial Loans: Long-term loans to industries, especially for setting up new

plants and machinery.

 Infrastructure Loans: Loans for building infrastructure like roads, bridges,

and other public facilities.

 Export Financing: Loans to support export activities and international trade.

7. Peer-to-Peer (P2P) Lending Platforms

P2P lending platforms connect borrowers directly with lenders via an online
platform. The borrowers get loans from individual investors or lenders without
involving traditional financial institutions like banks or NBFCs. The loans are
typically unsecured, and lenders earn returns through interest payments.

Examples:

 Faircent

 Lendbox

 LenDenClub

Services Provided by P2P Lending Platforms:

 Personal Loans: Unsecured loans for personal needs.

 Business Loans: Small loans for businesses, often with more flexible terms
than traditional financial institutions.

21
  Investment Opportunities: Lenders (investors) earn returns by financing
loans to borrowers.

Loan institutions in India are diverse, offering a wide range of credit products
designed to meet the needs of individuals, businesses, and rural populations. Whether
it is a commercial bank, a cooperative bank, a microfinance institution, or a peer-to-
peer lending platform, each institution plays a vital role in the Indian financial
ecosystem by providing access to capital.

Gold Loan

A Gold Loan is a secured loan where borrowers pledge their gold jewelry or coins as
collateral to the lender in exchange for a loan. It is a type of personal loan that allows
individuals to use their gold as security to get quick access to funds. The loan amount
is typically determined based on the value of the gold being pledged, with a loan-to-
value (LTV) ratio set by financial institutions, often around 75-90% of the gold's
market value.

Gold loans are popular in India due to their relatively simple approval process, quick
disbursal, and minimal documentation requirements. They provide an easy way for
people to meet financial needs, especially in times of emergency or for urgent
expenses.

Key Features of Gold Loans:

1. Collateral-Based Loan: The loan is secured by gold jewelry, coins, or other

forms of gold. The lender holds the gold as collateral until the loan is repaid.

2. Quick Processing: Gold loans are processed quickly compared to unsecured

loans. The disbursal of the loan is typically faster because the lender does not
have to assess the borrower’s credit history.

22
 3. Loan Amount: The loan amount is generally a percentage of the current
market value of the gold being pledged. The exact percentage varies from
lender to lender, but typically, it ranges from 75% to 90%.

4. Interest Rates: The interest rates on gold loans are usually lower than
unsecured loans because they are secured by collateral. Rates can range from
9% to 15% per annum, depending on the lender and the loan amount.

5. Repayment Flexibility: Gold loans usually offer flexible repayment options,

including:

 Regular EMI (Equated Monthly Installments).

 Bullet Repayment: The borrower repays the entire loan amount at once at
the end of the loan tenure.

 Pay Interest Only: The borrower pays only interest during the tenure and
repays the principal at the end.

6. No Requirement for Credit Score: Since gold loans are secured by

collateral, the lender does not place much emphasis on the borrower’s credit
score or financial history.

7. Loan Tenure: Gold loans typically have a short loan tenure, ranging from 1
month to 5 years, with the option for the borrower to repay early.

8. Documentation: The documentation process is simple and involves proof of

identity, address, and ownership of the gold being pledged.

Advantages of Gold Loans:

1. Quick and Easy Access to Funds: Gold loans are processed swiftly, often
within a few hours to a day.

2. No Credit History Check: Even individuals with poor or no credit history can
avail of a gold loan.

3. Lower Interest Rates: Compared to unsecured loans, gold loans typically

have lower interest rates.

4. Flexible Repayment Options: Borrowers can choose repayment options that

best fit their financial situation.

23
 5. No End-Use Restrictions: The borrower can use the funds for any purpose,
including medical emergencies, business expansion, or education.

Disadvantages of Gold Loans:

1. Risk of Losing Gold: If the borrower defaults on the loan, the lender has the
right to sell the gold to recover the loan amount.

2. Shorter Loan Tenure: Most gold loans have short repayment periods, which
could make repayment difficult for some borrowers.

3. Lower Loan Amount: The loan amount is based on the gold's value, which
may not always meet the borrower's entire financial need.

4. Interest Charges: Gold loans, while generally having lower interest rates than
unsecured loans, still carry interest charges, which can add up over time.

Gold Loan Institutions in India:

1. Muthoot Finance: One of India’s largest gold loan providers, Muthoot

Finance offers gold loans with quick processing and competitive interest rates.

2. Manappuram Finance: Another leading player in the gold loan sector,

offering loans against gold with flexible repayment options.

3. HDFC Bank: Offers gold loans with a simple documentation process and fast
approval.

4. ICICI Bank: Provides gold loans with attractive interest rates and a simple
application process.

5. Axis Bank: Offers gold loans with a quick disbursement process and flexible
repayment options.

Gold loans provide an excellent way for individuals to access quick funding without
the need for a good credit history. By pledging gold as collateral, borrowers can
secure loans at relatively lower interest rates and repay them on flexible terms.

However, it’s crucial to carefully assess the terms and conditions, as defaulting on
repayment may lead to the loss of the pledged gold.

24
CHAPTER II
RESEARCH
DESIGN

25
 CHAPTER II
RESEARCH DESIGN

 TITLE OF THE STUDY

The present study titled as ‘A Comparative study on gold provided by

Muthoot Finance and HDFC Bank.’ The study if made with special
reference to the gold loan and its facility, history, types, advantages,
limitations, analysis and interpretations.

 OBJECTIVES OF THE STUDY

The following are the objectives of present study:

 To study the historical evolution of gold loans, including their origins, growth,
and significance in financial markets.

 To explore the regulatory framework and key policy changes that have
influenced the gold loan sector over time.

 To compare the operational models, risk profile assessment, and competitive

positioning of Muthoot Finance and HDFC Bank in the gold loan segment.

 To find out the company’s efficiency based on past and present profitability
ratios.

 To analyze and compare the features of gold loan facilities provided by both
companies, including interest rates, loan tenure, repayment flexibility, and
customer service.

 DATA AND METHODOLOGY:

For the purpose of study of gold loan only secondary data is used. Secondary
Data is collected from textbook, reference book, annual reports of company
(last 3 years) and company’s website.

26
 SCOPE OF THE STUDY

The scope of the study of gold loan project is limited to collecting financial
data published in annual report of the company every year. The present study
carried out for 3 years (2022 – 2024).

 LIMITATIONS OF THE STUDY

The following are the limitations of the study:

 The study was limited to only 3 years financial data.

 The study is purely based on secondary data which were taken primarily from
published annual reports of Muthoot Finance and HDFC Bank.
 The study is limited to few ratios because of non-availability of detailed
financial data.
 The ratio is calculated from past financial statement and these are not
indicators of future.
 The short span of time is also one of the limitations.

 CHAPTER LAYOUT

The present study is arranged as follows

 Chapter 1: Introduction gives the brief introduction of gold loan.

 Chapter 2: Research Design which gives the overview of project.
 Chapter 3: This chapter concerned with theoretical review of gold.
 Topic under study is given in fourth chapter with data analysis and
interpretation.
 Chapter 5: Summarizes the results of analysis of company.

27
CHAPTER III
REVIEW OF
LITERATURE
AND
THEORETICAL
VIEW

28
 CHAPTER III
REVIEW OF LITERATURE

1. To Study the People’s Perception Towards Gold Loan Finance with The
Reference of Bardoli Region, Pooja Kayasth, Pr. Vivek Ayre (May –June
2021) Figuring out how individuals feel about gold loans is the goal of the
study. In addition, factors influencing the purchase of gold and gold loans
were investigated. To find out how people feel about gold loans in the Bardoli
region. Using a descriptive research design and a primary data collection
approach, results of the study on 'To study the people's perception towards
gold loans finance with the reference of Bardoli region' were obtained.
For this study, 161 persons overall were surveyed. Residents of the Bardoli
region answered a questionnaire that provided data for the study. After
gathering information through a questionnaire, need to know how individuals
feel about gold loans. The public's perception of the main benefit of gold loans
over personal loans is that they are better. Instead of NBFCs, the great
majority of individuals borrow gold from banks. Simple instalments are the
most common form of payment for gold loans. Many think that obtaining a
gold loan is an easy and quick process.

2. A Study on Indian Gold Loan Market and its Impact in Indian Market,
Nandakumar V.P. (July 2015 ) According to estimates, the majority of gold
in India is owned by rural residents, who frequently possess it in small
amounts as their only asset. A Rural Indians are aware that they can quickly
obtain money from goldsmiths, pawnbrokers, and moneylenders in the event
that their crop fails or a member of their family becomes ill. Gold plays a
significant role in highlighting Indian traditions and rituals. In Indian tradition,
it is common to see women wearing beautiful gold jewellery, which is a
symbol of wealth and social well-being.
Additionally, gold jewellery was always valued and in demand in a rich social
tradition full of festivals and joy. Another popular tradition in the country is
the giving of gold as a gift on significant occasions. The purpose of the study
is to learn about the Indian gold loan market, its effects, and the relationship

29
 between gold loans and financial inclusion. Based on research done among
Manappuram Finance Ltd.'s and other institutions' clients, the study aims to
collect data on the nature, character, and structure of the gold loan industry in
India, as well as its socioeconomic impact and related issues.

3. AN ANALYTICAL STUDY ON THE GOLD LOAN IN INDIA, Gisa

George, Johnsy Johnson (November 2018) An essential component of
Indian culture, gold is considered as an extremely valuable asset. Many Indian
households end up taking out loans based on the market value of gold for any
type of emergency or event since gold has the qualities of being acceptable
collateral for lenders. A lender uses the gold assets as security to make loans.
Approximately 30% of the demand for gold stocks in recent years has come
from India.
The Indian economy, especially the gold market, has been growing quickly in
recent years. The market's rapid grow has also led to greater regulatory
scrutiny of gold loan lending practices. The only disadvantage of the
unorganized sector is that many of them ignore the regulatory framework,
while the fact that they are meant to be governed by it. The unorganized sector
continues to control the majority of the gold loan market share in
noncompliance with the regulatory framework. But when people's
perspectives and mindsets shift more toward the organized sector, they are
more inclined to seek gold collateral from banks or NBFCs.

4. A COMPARATIVE STUDY ON GOLD LOAN OFFERED BY

PRIVATE SECTOR BANKS, PUBLIC SECTOR BANKS AND NON –
BANKING FINANCIAL COMPANIES, Dr. Rengarajan V, Ms. Varshini
M (April 2024) As a type of secured lending, gold loans have become
increasingly popular since they give people easy access to money backed by
their gold assets. The gold loan products provided by public and private sector
banks as well as non-banking financial companies (NBFCs) are compared in
this research. The study looks at a number of factors for these three types of
financial institutions, including interest rates, loan-to-value ratios, loan
processing timeframes, documentation needs, customer service standards, and

30
 repayment choices. This study attempts to give a thorough grasp of the
advantages and disadvantages of gold loan offerings from various lender types
by combining quantitative data and qualitative observations. In addition to
helping financial institutions improve their service and product offerings, the
study's conclusions can be a useful tool for borrowers looking for gold loans.

5. Performance Evaluation of Gold Loan NBFCs using CAMEL Model,

Jasvinderjit Kaur (June 2016) India is recognized as the world's biggest
importer of gold. Indians are deeply fascinated with and feel a great desire to
own gold. As a result, the gold lending market has experienced rapid
expansion in the past few years. By monetizing the nation's idle gold supply,
gold loan NBFCs have established a remarkable place for themselves in the
process of financial inclusion and economic development. However, gold loan
NBFCs meet the consumption and financing needs especially of the rural and
under banked Citizens. Still, these gold loan NBFCs' rapid expansion and
aggressive approach to entering the possible gold loan market also made it
necessary to keep a close eye on their operations. Thus, the goal of the current
study is to assess and compare the financial results of the two massive gold
loan NBFCs, Manappuram CAMEL model-based Finance Ltd. and Muthoot
Finance Ltd. According to the study's overall findings, both gold loan NBFCs
operate similarly when considering the CAMEL model's characteristics.
However, Muthoot Finance Ltd. is overtaking Manappuram Finance Ltd. in
terms of managerial effectiveness, while the latter performs better in terms of
capital adequacy.

31
 THEROTICAL VIEW

GOLD

Gold is the only asses which offers dual benefits; it is tangible as well as liquid,
unlike real estate which is tangible but not liquid, or company shares which are liquid
but not tangible.

Almost all of us are fascinated by gold to some extent. The royal metal has had an
impact on mankind throughout history. To get more of it, we have fought or robbed
one another, travelled to areas where it could be mined, hated those who have it, and
felt sorry for those who have not. In our adult lives, many of us wear some of it every
day.
In summary, the main reason why people purchase gold is the security it offers
during difficult times. This is possibly the most significant general investing feature
of gold.

An adage preaches, "Gold shines when everything else falls apar Gold is considered
as a 'must-have in your investment portfolio and experts recommend an exposure of
anything between 5 to 15 per cent your total assets in gold.

Gold remains the most liquid investment in India. All other instruments like bank
fixed deposits, mutual funds or National Saving Certificates (NSC) would take at least
2-3 working days to convert to cash. In comparison, gold can be converted almost
over the counter

32
Gold Purchase and Investment In India

In India, purchasing gold is quite popular, especially during festive seasons or

occasions like weddings. Gold is a popular and trusted investment option in India,
offering several benefits such as liquidity, inflation hedge, and diversification. There
are various ways to invest in gold, and each method comes with its own set of
advantages and risks. Here are a few common ways to buy gold and option for
investing in gold.

In India itself, investment in gold in the form of bars and coins almon doubled in the
first quarter of 2005 to 189 tonnes as compared with the same period the previous
year.

Consumption and Investment in India (in tonnes)

Particulars Q12004 Q12005

Jewellery 576 688

Investment 100 189

Total gold consumed 776 977

 Investment options for gold

33
Motivation for Gold Investment

People often buy gold because of the security it is expected to provide during times
of trouble.

Here are a few common ways to buy gold and option for investing in
gold :

1. Physical Gold:

 Jewellery: While buying gold jewellery is common, it's more of a personal

or ceremonial purchase. The downside is that you end up paying for
making charges (crafting cost) in addition to the gold's price, which isn't
recoverable if you sell the jewellery. Also, the purity of the gold might
vary, so it’s important to buy from trusted jewellers. Gold Coins & Bars:
You can buy gold coins or bars from banks, bullion dealers, or authorized
retail outlets. Look for well-known brands or institutions to ensure purity
and quality.

 Gold Coins & Bars: These are easier to buy, store, and sell than jewelry,
and you don’t have to pay for making charges. You can buy gold coins and
bars from banks, authorized dealers, or online platforms. 24K gold is the
purest form, but 22K gold is also popular in India. It’s important to ensure
the purity and certification of the gold you’re buying.

 Pros: Tangible asset, familiar to most people, easily accessible.

 Cons: Requires storage, additional making charges for jewelry, vulnerable to

theft.

2. Gold ETFs (Exchange-Traded Funds):

 Gold ETFs are financial products that allow you to invest in gold without
holding the physical metal. These funds track the price of gold and can be
bought and sold like stocks on the stock market. They are backed by
physical gold, and you can invest in them through your demat account.

a) Popular Gold ETFs in India:

34
  SBI Gold ETF

 HDFC Gold ETF

 Kotak Gold ETF

Pros: Liquid (can be bought or sold anytime during market hours), no storage
or security risk, easy to trade through a demat account.

Cons: Brokerage fees, might not be ideal for those unfamiliar with the stock
market.

3. Sovereign Gold Bonds (SGBs):

 Issued by the Indian government, Sovereign Gold Bonds are a fantastic way
to invest in gold without the need for physical storage. These bonds are
denominated in grams of gold, and investors earn an interest rate (around
2.5% p.a.) on the amount invested, in addition to any capital appreciation
in gold’s price. SGBs have a fixed tenure of 8 years, with options for
premature redemption after 5 years.

 Pros: Government-backed (low risk), earn interest (2.5% p.a.), no storage

costs, capital gains tax exemption if held for more than 3 years.

 Cons: Fixed tenure (8 years), non-transferable unless listed on exchanges,

limited issue dates (can only buy during specific government-issued
schemes).

4. Digital Gold:

 Digital gold is another option that allows you to buy gold online in small
amounts. You can buy it from platforms like MMTC-PAMP, SafeGold,
PhonePe, Google Pay, and Paytm. It allows you to invest in gold starting
from as little as 1 gram, and the gold is stored in secure vaults.

 Pros: Small amounts, no storage required, easy to buy and sell, backed by
physical gold.

35
  Cons: Charges for buying and selling, purity verification, withdrawal options
might not be as flexible as physical gold.

5. Gold Mining Stocks

 Investing in gold mining companies is another way to gain exposure to the

gold market. This can be done through purchasing stocks of gold mining
companies or investing in gold-focused mutual funds or ETFs that track
gold producers.

 Popular Stocks: You can look into international mining companies like
Barrick Gold, Newmont Mining, or even Indian mining companies that
deal in gold extraction.

 Pros: Potential for high returns if the mining company performs well.

 Cons: Riskier than physical gold as company performance can be affected by

other factors like operational issues, debt, and market conditions.

6. Gold Mutual Funds

 Gold mutual funds invest in gold-related assets, such as gold ETFs, gold
mining companies, or directly in the physical gold market. They offer
exposure to gold without the need for you to directly purchase gold coins
or bars.

a) Popular Gold Funds in India:

 Nippon India Gold Savings Fund

 HDFC Gold Fund

 ICICI Prudential Gold Fund

Pros: Professional management, no need to buy or store gold physically.

Cons: Fund management fees, performance tied to the fund manager’s

decisions.

7. Gold Futures and Options

36
  Gold futures allow you to buy or sell gold at a predetermined price on a
future date, and options give you the right (but not the obligation) to
buy/sell gold at a specific price. These financial instruments are suitable
for traders who understand the complexities of the markets and are willing
to take on higher risk.

 Pros: High potential returns if you understand the market.

 Cons: Complex, requires knowledge of market conditions, high risk.

Taxation on Gold in India

 Capital Gains Tax: When you sell gold, the gains are subject to capital
gains tax:

a) Short-term Capital Gains (STCG): If the holding period is less than 3 years,
the gains are taxed at 20% with indexation benefits.

b) Long-term Capital Gains (LTCG): If the holding period is more than 3

years, the gains are taxed at 3% (plus cess) or exempt from tax for SGBs after
holding for 8 years.

c) GST: When purchasing physical gold, 3% GST is applicable on the purchase

price.

Today, gold forms 10% of the average Indian asset allocation.

Asset Allocation

Bank deposits 20%

Insurance and 27%

Small Savings

Gold 10%

Shares 2%

Mutual Fund 2%

Others 39%

Gold Purchase and Investment Internationally

37
 Gold remains one of the most popular and trusted assets for international investment,
often seen as a hedge against inflation and economic uncertainty. Purchasing and
investing in gold internationally can be done in several ways, each with its own
advantages, risks, and processes. Here's an overview of the common methods:

1. Physical Gold

 Gold Bars and Coins: Investors can buy gold in the form of bars, coins, and
jewellery. These items are tangible and can be stored in safes or vaults.

 Pros: Physical possession, easy to sell locally, and a long history of being a
store of value.

 Cons: Security concerns (theft, loss), storage fees, and potential premium
costs above market value.

 How to Buy: Gold is available through dealers, banks, or online platforms.

Major mints, such as the U.S. Mint or the Royal Canadian Mint, offer
reputable gold coins.

 Where to Buy: International bullion dealers, local coin shops, online

platforms (e.g., JM Bullion, APMEX), and banks.

2. Gold ETFs (Exchange-Traded Funds)

 Gold ETFs allow investors to buy shares that represent ownership in gold
holdings, often stored in vaults.

 Pros: Liquid (easy to trade), no need for storage or insurance, and lower
premiums than physical gold.

 Cons: Fees (management fees), no physical possession, and market

fluctuations.

 Popular ETFs:

 SPDR Gold Shares (GLD): The world's largest gold ETF, which holds
physical gold and allows investors to buy shares representing gold

 iShares Gold Trust (IAU): A more cost-effective option for those looking
to invest in gold through ETFs.

38
3. Gold Mining Stocks

 Investors can purchase shares in companies that mine gold. These stocks may
offer leveraged exposure to gold prices, as mining companies can benefit
more significantly from rising gold prices.

 Pros: Potential for high returns, dividends, and exposure to the mining
industry.

 Cons: More volatile than gold itself, as they are affected by company
performance, labour strikes, environmental regulations, etc.

 How to Buy: Available through stock exchanges worldwide, such as the

New York Stock Exchange (NYSE) or the Toronto Stock Exchange
(TSX).

4. Gold Futures and Options

 Futures contracts are agreements to buy or sell a certain amount of gold at a

predetermined price on a specified date in the future. Options give the
right, but not the obligation, to buy or sell gold at a set price by a certain
date.

 Pros: High leverage (potential for higher returns), can hedge against other
investments.

 Cons: Complex and risky, requires substantial market knowledge, and can
lead to large losses.

 How to Buy: Traded on commodity exchanges like the COMEX

(Commodity Exchange) in New York or the London Metal Exchange
(LME).

5. Gold Certificates

39
  Gold certificates are issued by banks as proof of ownership of a certain
amount of gold that is stored in a vault.

 Pros: Paper-based, eliminating the need for physical storage, and easy to
trade.

 Cons: Counterparty risk (depending on the bank), not as widely recognized

as physical gold.

 How to Buy: Issued by some banks, particularly in countries with

established bullion markets like Switzerland and the U.S.

6. Gold Savings Accounts

 Some banks and financial institutions offer gold-backed savings accounts,

where investors can buy and hold gold electronically. The bank stores the
physical gold and issues a certificate of ownership.

 Pros: Simple and convenient, no physical storage required.

 Cons: Fees, and the risk associated with the bank’s solvency.

 How to Buy: Offered by banks or platforms like Bullion Vault, Gold Money,
and others.

7. Gold Indices and Mutual Funds

 Gold indices track the performance of a group of gold stocks, while gold
mutual funds pool investor money to invest in gold-related assets, such as
mining stocks or gold futures.

 Pros: Diversified exposure to the gold sector.

 Cons: Management fees and less direct exposure to gold price movements.

 How to Buy: Available through brokers or financial institutions.

Factors to Consider When Investing in Gold Internationally

40
  Exchange Rates: Gold is traded globally in U.S. dollars, so exchange rate
fluctuations may impact your investment if you are purchasing from a
different country.

 Regulations and Taxes: Different countries have varying laws on taxes

related to gold investments (capital gains tax, VAT on gold coins, etc.), so
it's essential to understand these before making an investment.

 Storage and Security: For physical gold, consider the costs and logistics of
storing gold in a safe, vault, or a secure facility. Many countries offer
vaulting services in major financial centres like London, Zurich, and
Singapore.

 Liquidity: Some forms of gold investment, such as ETFs, offer higher

liquidity, while physical gold may take longer to sell, especially in specific
forms (like rare coins).

Key Global Markets for Gold Investment:

London: Known as the "gold trading capital," London is home to

the London Bullion Market Association (LBMA) and a hub for
gold trading and storage.

Switzerland: Known for its neutrality and security, Switzerland

is a key player in gold refining, storage, and investment.

 United States: The U.S. is a leading market for gold ETFs, futures, and
mining stocks, with large exchanges like the COMEX.

 India: Gold is culturally significant in India, and it has a large market for
physical gold, including jewelry and coins.

 China: China is a major player in both the production and consumption of

gold, and it has rapidly growing gold investment markets.

George Bernard Shaw said, "If you must choose between placing your trust in
government or placing your trust in gold, then gentlemen, I strongly advise you to

41
place your trust in gold." Due in large part to these historical lessons, French people,
who survived numerous wars, now control a large portion of the world's privately
owned gold, primarily in the form of coins. The estimated global distribution of
privately held gold is shown in pie chart below. According to the World Gold
Council, 24 percent of the 106.000 tons of bullion gold that were above ground in
1992 were in private hands.

Numerous factors can make gold an attractive investment. Like timber land, gold has
historically demonstrated returns that are unrelated to the stock market as a whole.
This makes gold a powerful diversifying agent in a portfolio.

Private hoarding of world gold

Other United States
12% 15%

India
18%
France
30%

Far East
7%
Other Europe Middle East
0.1 8%

 Popular Coins for Gold Investment

 American Eagles
 Canadian Maple Leal
 Mexican 50 peso [1.2057 ounces]
 Austrian 100 corona [0.9802 ounces]
 South African Krugerrand
 Chinese Panda
 Japanese Hirohito
 Hungarian 100 Korona [0.9802 ounces]
 California gold pieces

42
Ratios and Returns on gold loan

Gold loans are a popular form of secured lending where individuals pledge their gold
ornaments or jewelry as collateral to borrow money. When it comes to gold loans,
there are a few important ratios and returns that are often considered by both lenders
and borrowers:

1. Loan-to-Value (LTV) Ratio:

The Loan-to-Value ratio is the percentage of the gold's market value that the
lender is willing to lend.

Formula:

LTV = (Loan Amount/Market Value of Gold) x 100

In India, for instance, the Reserve Bank of India (RBI) caps the LTV ratio at

75% for regulated lenders, meaning the borrower can typically get a loan up to 75%
of the gold's value. The remaining 25% is considered a buffer for the lender.

2. Interest Rates:
The interest rate on a gold loan is charged based on the loan amount and
tenure. It is usually lower than unsecured loans due to the collateral involved.
Gold loan interest rates usually range from 10% to 28% annually, depending
on the lender, the loan tenure, and the amount of gold pledged.

3. Processing Fees:
Many lenders charge a processing fee to cover administrative expenses. It
generally ranges from 0.5% to 2% of the loan amount.

4. Tenure and Repayment Schedule:

 Short-Term Loans: Gold loans are typically short-term loans, with tenures
ranging from 1 month to 3 years.

 Repayment Options:

43
  Monthly Interest Payment: The borrower pays only the interest every
month and repays the principal at the end of the term.
 EMI (Equated Monthly Instalment): The borrower repays both
principal and interest in monthly instalments.

5. Returns for Lenders (Yield on Gold Loan):

Yield for Lenders can be seen as the total interest paid over the loan amount.
 Formula for Return on Investment (ROI)

ROI = (Total Interest Paid/Loan Amount) x 100

For short-term loans, lenders benefit from faster loan turnarounds, and if the gold
price appreciates over time, the value of collateral also increases.

6. Gold Price Impact:

 The value of the gold pledged directly affects the loan amount that can be
availed.
 Price Fluctuations: If the price of gold increases, the LTV ratio might be
adjusted (if the loan terms allow), potentially allowing the borrower to
avail of higher loan amounts. Conversely, if gold prices fall, the borrower
may need to repay part of the loan to maintain the required LTV ratio, or
the lender may demand additional collateral.

Key Points :

 Lower Risk for Lender: Since the loan is secured by physical gold, it carries
lower risk for lenders compared to unsecured loans.
 Flexibility for Borrower: Borrowers can choose loan tenure and repayment
methods to suit their financial capacity.
 Interest Rate Impact: The total amount a borrower repays is significantly
impacted by the interest rate, so comparing offers from different lenders is
advisable.

Legal Documents Required for Gold Loan

44
1. Loan Application Form
A standard form provided by the lender, which collects personal details such
as your name, address, contact information, and financial background.
2. Identity Proof
Valid government-issued ID card to establish your identity. Common
documents include:
 Aadhar Card
 Passport
 Voter ID
 Driver’s License
3. Address Proof
A document to verify your current address. This can include:
 Aadhar Card
 Utility Bills (electricity, water, or gas)
 Bank Statement or Credit Card Statement
 Passport
 Rental Agreement
4. Photographs
Typically, 2 passport-sized photographs of the borrower are required.
5. Gold Articles
You must provide the gold items that you intend to pledge as collateral. These
will be assessed for purity and weight by the lender’s evaluation team. This
can include gold jewellery, coins, bars, or other gold items.
6. Income Proof (if applicable)
Some lenders may ask for income proof, especially if the loan amount is large
or the lender wants to assess your repayment capacity.
 Salary Slip (for salaried individuals)
 Income Tax Returns (ITR)
 Bank Statements for the last 6 months
 Business Documents (for self-employed individuals)
7. Loan Agreement
A legal document that you sign with the lender, which includes:
 Loan Amount and Interest Rate
 Tenure of the Loan
45
  Repayment Schedule (EMI details or lump sum payment structure)
 Collateral Agreement (describing your gold pledged as collateral)
 Penalty Terms in case of default or delayed payments
 Conditions for Auctioning the gold if the loan is not repaid
 Processing Fee (if any)
 Early Repayment or Pre-payment Terms
8. Repayment Schedule
A detailed schedule of how the loan will be repaid (monthly EMIs or lump-
sum). It often includes the exact dates and amounts of repayment.
9. NOC or Release Letter (if applicable)
If the gold is being pledged to release an existing lien or encumbrance, an
NOC (No Objection Certificate) or Release Letter may be required from the
financial institution or lender who currently holds the claim.
10. Other Documents (if required by the lender)
 KYC (Know Your Customer) documents might also be asked, particularly
if the borrower is a new customer of the lender.
 Power of Attorney (in certain cases like for a third-party borrower)

 These documents will ensure that the loan process is smooth, and both the
borrower and lender are protected under the terms of the loan agreement

List of Companies which provide gold loans

 MUTHOOT FINANCE
 MANAPPURAM FINANCE
 MUTHOOT FINCORP
 IIFL FINANCE
 BAJAJ FINSERV
 HDFC BANK
 AXIS BANK
 STATE BANK OF INDIA (SBI)
 PUNJAB NATIONAL BANK (PNB)
 ICICI BANK
 FEDERAL BANK

46
 CANARA BANK
 KARNATAKA BANK
 SOUTH INDIAN BANK
 UNION BANK OF INDIA

47
 CHAPTER IV
DATA ANALYSIS

48
 CHAPTER VI.1
COMPANY PROFILE

 Muthoot Finance

Muthoot Finance Ltd. is India's largest gold financing company in terms of

loan portfolio. Established in 1939, the company has grown to become a
trusted name in the financial services sector, specializing in gold loans while
also offering a range of other financial products and services. With an
extensive network of branches across India, Muthoot Finance has built a
strong customer base by providing quick and secure loan solutions backed by
gold assets. The headquarters are in Kochi, Kerala.

Mission
To build leading customer-centric businesses enabled by technology,
maintaining the highest standards of corporate governance and
uncompromising values.

Vision
Be the most trusted, globally diversified institution enriching lives of the
masses while contributing back to the society.

Services
 Gold loan
 Housing Finance
 Small Business Loan
 Insurance
 Vehicle Loan
 Personal Loan
 Mutual Funds
 Custom Offers

49
 Branches
Muthoot Finance has an extensive branch network across India, with over
4,854 branches spread throughout urban, semi-urban, and rural regions. This
wide presence enables the company to provide accessible and convenient
financial services to a diverse customer base. The branches are strategically
located to cater to both metropolitan areas and remote locations, ensuring that
individuals seeking gold loans and other financial solutions can easily access
their services. This extensive network has been a key factor in Muthoot
Finance's strong market presence and customer reach.

Muthoot Finance has a notable international presence through its subsidiaries

and representative offices. The company operates in key global markets such
as the United States, United Kingdom, and United Arab Emirates (UAE),
primarily catering to the financial needs of Non-Resident Indians (NRIs).
These international branches and offices offer a range of services, including
money transfer solutions, foreign exchange, and other financial products,
strengthening Muthoot Finance's global footprint. This overseas expansion
reflects the company's commitment to serving Indian communities worldwide.

Awards
1. Golden Peacock Award for Excellence in Corporate
Governance – Recognized for maintaining high standards in
corporate ethics and governance.
2. Best NBFC Award – Awarded by various financial institutions for
its outstanding performance in the non-banking financial sector.
3. Asia's Most Trusted Financial Services Brand – Recognized for
building strong customer trust and brand value.
4. CSR Excellence Awards – Honoured for impactful social
responsibility initiatives in education, healthcare, and community
welfare.
5. Most Preferred Workplace Award – Acknowledged for creating
a positive and inclusive work environment.

50
 HDFC Bank

HDFC Bank Ltd. is one of India's leading private sector banks, known for its
strong financial performance, extensive product portfolio, and customer-
centric approach. Established in 1994, the bank has grown to become a
prominent player in the Indian banking sector, offering a wide range of
services, including retail banking, wholesale banking, and treasury operations.
With a strong digital platform and a vast branch network, HDFC Bank is
recognized for its innovation, service excellence, and commitment to
enhancing customer experience.

Vision, Mission and Values

HDFC Bank’s mission is to be a world-class Indian bank. It aims to achieve
two key goals: first, to be the top choice for banking services among retail and
wholesale customers; and second, to grow its profits steadily while managing
risks wisely.
The bank is dedicated to upholding strong ethical standards, professional
integrity, and strict regulatory compliance. Its business philosophy is built on
five core values: Operational Excellence, Customer Focus, Product
Leadership, People, and Sustainability.

Products and Services

 Wholesale banking
 Retail banking
 Treasury services
 Auto loans
 Two-wheeler loans
 Personal loans
 Loans against property
 Consumer durable loans
 Lifestyle loans
 Credit cards
 Online Net Banking services
 Accounts and deposits
 Investment and insurance products

51
 Branches
HDFC Bank has 4014 branches across India. You can find a list of HDFC
Bank branches by state on the bank's website. In addition to its branches,
HDFC Bank also has over 15 thousand business correspondences managed by
common service centres in the country.

With the addition of Singapore, HDFC now operates five

international branches: Hong Kong, Bahrain, Dubai, Singapore,
and an IFSC Banking Unit in Gujarat International Finance Tech
City (GIFT City). The bank also maintains representative offices in
Kenya, Abu Dhabi, Dubai, and London.

Awards
1. Best Bank in India – Recognized by prestigious publications like Forbes,
Euromoney, and Finance Asia for its overall excellence.
2. Best Digital Bank – Honoured for its innovative digital banking solutions and
advanced technology platforms.
3. Bank of the Year – India – Awarded by The Banker magazine for its
financial strength and strategic achievements.
4. Most Valuable Brand in India – Consistently ranked as one of the country’s
most trusted and valuable brands.
5. Excellence in Corporate Social Responsibility (CSR) – Recognized for
impactful initiatives in education, healthcare, and rural development.

52
 CHAPTER IV.2
DATA ANALYSIS

Ratio Analysis
 Loan-to-Value (LTV) Ratio
The Loan-to-Value (LTV) ratio is a crucial metric in finance, especially for
companies engaged in secured lending. It measures the proportion of a loan
amount to the appraised value of the asset being used as collateral.

 Muthoot Finance
Years Average percentage
of LTV Ratio

March 2023 63%

September 2023 70%
December 2023 65%
March 2024 63%
September 2024 63%

Average LTV Ratio Percentage of Muthoot Finance

Average LTV Ratio in Percentage

70%

65%

63% 63% 63%

Mar-23 Sep-23 Dec-23 Mar-24 Sep-24

Percentage

53
 These fluctuations in Muthoot Finance's LTV ratios are influenced by changes
in gold prices and the company's lending policies.
The LTV ratio in March 2023 was 63% and its increase to 70% in September
2023 than in December 2023 it decreases to 65% and in March 2024 it goes
again to 63% and remain same in September 2024.
The LTV ratio percentage shows in above graph that the Muthoot Finance's
average LTV ratios have varied between 63% and 70% over recent years. And
provide up to 75% as per RBI guidelines.

 HDFC Bank
Specific average LTV ratio data for HDFC Bank's gold loan portfolio is not
publicly disclosed. However, according to the Reserve Bank of India (RBI)
guidelines, the maximum permissible LTV ratio for gold loans is up to 75%.
This means that borrowers can receive loans amounting to up to 75% of the
value of their pledged gold. Individual banks, including HDFC Bank, may set
their LTV ratios within this regulatory limit based on their internal policies
and risk assessments.

As per the information not exact comparison can be done, because HDFC
Bank has not provided any information about there LTV average ratio
percentage in there reports. So, it can be assumed that the Muthoot Finance is
giving best value against loan as per the information.

 Current Ratio
The current ratio is a financial metric that evaluates a company's capacity to
meet its short-term liabilities with its short-term assets. A higher current ratio
typically indicates better liquidity and financial health.

Current Ratios of 3 years

Fiscal Year HDFC Bank Muthoot Finance
2022 1.02 3.05
2023 1.53 3.67
2024 1.48 4.14

The Muthoot Finance has current ratio in the year 2022 was 3.05 which
increased in the year 2023 to 3.67 and in the year 2024 it was goes to 4.14.
So, as per the figures shown in above table the increasing current ratio over
these years suggests an improvement in liquidity, with the company enhancing
its ability to cover short-term obligations which means its indicating better
liquidity and financial health of the company.

54
 Current Ratio of Muthoot Finance
4.5

3.5

2.5

1.5

0.5

0
2022 2023 2024

Current ratio

Current Ratio of HDFC Bank

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2022 2023 2024

Current Ratio

The HDFC Bank has current ratio in the year 2022 was 1.02 which increased
to 1.53 in year 2023 and slightly decreased to 12.48 in year 2024.
The current ratio shows an increase from 2022 to 2023, followed by a slight
decrease in 2024. However, the ratios remain within a stable range, indicating
consistent liquidity management.

As per the information of current ratio of both companies of the year 2022,
2023 and 2024, The Muthoot Finance is providing better liquidity and has
better financial health as compared to HDFC Bank.

55
Terms and Conditions
 Loan Amount
Muthoot Finance Offers loan amounts ranging from ₹1,500 to ₹5 crores,
depending on the specific gold loan scheme.
HDFC Bank provides gold loans starting from ₹25,000, with a reduced
minimum of ₹10,000 in rural areas.
In loan amount the Muthoot finance is best because there is loan scheme
which provide loan starting from ₹1,500 which is much lesser than the amount
provided by HDFC bank.

 Loan Tenure
Muthoot finance typically offers a tenure of 1 year across various gold loan
schemes.
HDFC bank provides loan tenures ranging from 6 months to 42 months.

In this HDFC bank has also a scheme for providing loan for 6 months but in
Muthoot finance there is tenure starting from 1 year. So HDFC bank is giving
more tenure options as compared to Muthoot finance.

 Repayment Options
Muthoot Finance Offers flexibility with monthly interest payments, bullet
payment options (full repayment at tenure's end), partial payments, and pre-
closure options.
HDFC Bank provides term loans, overdraft facilities, and bullet repayment
options, allowing customers to choose based on their financial preferences.

In Muthoot finance there are much easy and freely way to repay the loan
which encourage customer to take loan without any problem of repayment,
HDFC bank has also provides many options which can be taken as per
customers financial health. But Muthoot finance is better then HDFC bank in
case of repayment.

 Processing Time
Muthoot finance offers a "Gold Loan @ Home" service, providing 30-minute
doorstep service for loan amounts starting at ₹10,000, with instant cash loans
up to ₹2 lakhs and top-up loan services.
HDFC Bank claims to disburse gold loans within 45 minutes of application.

The Muthoot finance is giving doorstep service for loan and also processed in
30 minutes which is great and HDFC Bank also provide loan just in 45
minutes which is also great but the doorstep service of Muthoot finance is
takes one point here otherwise both are providing loan in less processing time.

56
  Documentation Process
Both institutions require minimal documentation, typically including ID proof
and address proof (PAN card, Adhaar card, Voter ID, etc.) and gold ownership
proof.
Muthoot Finance may have a faster approval process for small-ticket loans.

Gold Loan Comparison - Muthoot Finance vs. HDFC Bank

Gold loans are a popular financing option in India, and both Muthoot Finance and
HDFC Bank are prominent providers in this space. Each institution offers unique
advantages that cater to different types of borrowers. Understanding the key
differences in their loan structures, interest rates, and terms is essential for individuals
seeking the most suitable gold loan solution.
Muthoot Finance generally offers gold loans starting at 12% per annum (1% per
month). This simple structure is particularly appealing for borrowers seeking short-
term financing with minimal complexity. On the other hand, HDFC Bank's interest
rates range from 9.30% to 17.88% per annum, which offers the potential for lower
rates but also introduces variability depending on the borrower's profile, loan amount,
and tenure.
HDFC Bank stands out with its flexible loan tenures that range from 6 months to 42
months, accommodating borrowers seeking extended repayment periods. Conversely,
Muthoot Finance generally limits its gold loans to a maximum tenure of 1 year, which
may better suit individuals aiming to repay their loans quickly without long-term
financial commitment. Additionally, Muthoot Finance provides loan amounts starting
as low as ₹1,500, making it highly accessible for borrowers seeking smaller loans.
HDFC Bank's minimum gold loan amount is ₹25,000, with exceptions for rural
customers where the limit is reduced to ₹10,000. This difference highlights Muthoot
Finance's strength in serving micro-loan borrowers, while HDFC Bank may be more
suited for those seeking higher-value loans with better long-term flexibility.
 Both institutions offer multiple repayment methods, including bullet payments
(full repayment at tenure end), periodic interest payments, and part-prepay-
ment options. Muthoot Finance's "Gold Loan @ Home" service provides addi-
tional convenience for customers seeking doorstep service with minimal docu-
mentation requirements.
Basically, Muthoot Finance is ideal for individuals seeking quick, short-term
financing with straightforward terms and a focus on smaller loan amounts.
HDFC Bank offers better options for those seeking lower starting interest rates
(for eligible profiles) and longer repayment tenures, making it suitable for
borrowers who require more flexible loan management.

57
Revenue Growth
 Muthoot Finance

Year Revenue Growth

(₹ in crores)
2022 ₹11,098

2023 ₹10,544

2024 ₹15,162.74

Revenue Growth
₹16,000 ₹15,163

₹14,000

₹12,000 ₹11,098
₹10,544
₹10,000

₹8,000

₹6,000

₹4,000

₹2,000

₹0
2022 2023 2024

Amount ( ₹ in crores)

Muthoot Finance revenue was ₹11,098 crores in 2022 then during 2023 it decreased
to ₹10,544 crores after that in 2024 there was a huge growth in revenue of
₹15,162.74 crores.

58
  HDFC Bank
Year Revenue Growth
(₹ in crores)
2022 ₹1,67,695

2023 ₹2,04,666

2024 ₹4,07,995

Revenue Growth
Amount ( ₹ in crores)

₹407,995

₹204,666
₹167,695

2022 2023 2024

HDFC Bank has revenue of ₹1,67,695 crores in 2022 and in 2023 there was a growth
of ₹2,04,666 crores which is 22.1% more than the previous year and there was huge
growth in 2024 of ₹4,07,995 crores which is 99.4% growth more than the year 2023.
 By studying graph of both institutions there was huge growth in revenue in the
year 2024, In HDFC Bank the revenue is in continuous upward pattern from
the year 2022 to 2024 and in Muthoot Finance the revenue was in zig-zag pat-
tern. As per the growth both companies are doing great, HDFC bank is safer
because it is an bank and had large amount of revenue as compared to Mut-
hoot Finance which is an NBFC.

59
Loan Assets Under Management (AUM)
 Muthoot Finance
Year Loan AUM
(₹ in millions)
2021-22 ₹8,27,731

2022-23 ₹8,90,786

2023-24 ₹9,80,478

Consolidated Loan Assets Under

Management (AUM)

₹980,478
₹1,000,000

₹950,000

₹890,786
₹900,000

₹850,000 ₹827,731

₹800,000

₹750,000
2021-22 2022-23 2023-24

Amount ( ₹ in millions)

Muthoot Finance has loan AUM of ₹8,27,731 millions in the year 2021-22 which
later increases by 7.6% (₹8,90,786 millions) in 2022-23 than in the year 2023-24
AUM increases in great amount of ₹9,80,478 millions which is 10.1% more than
previous year.
The graph shows consistent growth, despite economic fluctuations, Muthoot Finance
has maintained steady AUM growth, reflecting its robust customer base and demand
for gold loans.
There is accelerating expansion, the growth rate increased from 7.6% in FY 2023 to
10.1% in FY 2024, signalling improved business performance and effective loan
disbursement strategies.

60
It shows resilient business model, Muthoot Finance’s focus on secured lending
through gold loans has allowed it to sustain growth while mitigating credit risk.
The upward path in AUM indicates strong financial stability and strategic expansion.
Continued demand for gold loans, combined with Muthoot Finance's established
presence in the sector, suggests positive future growth prospects.

 HDFC Bank
Year Loan AUM
(₹ in millions)

2021-22 ₹17,052.9

2022-23 ₹21,113.7

2023-24 ₹25,755.6

Loan Assets Under Management

(AUM)
₹30,000.00

₹25,000.00

₹20,000.00

₹15,000.00

₹10,000.00

₹5,000.00

₹0.00
2021-22 2022-23 2023-24

Amount( ₹ in billions)

HDFC Bank has ₹ 17,052.9 billion in the year 2021-22 which increases to ₹21,113.7
billion in year 2022-23 which is 23.8% more than previous year and in 2023-24 it
goes to ₹ 25,755.6 billion which is 22% more than FY 2022-23.
HDFC Bank’s AUM has grown at a healthy rate, consistently exceeding 20% year-
on-year, reflecting its strong lending capabilities and expanding customer base.

61
The graph shows the consistent growth underscores HDFC Bank's diversified loan
portfolio, spanning retail, corporate, and rural segments and it also shows the bank’s
ability to scale its loan book efficiently points to strong risk management practices
and customer acquisition strategies.
HDFC Bank's continued focus on expanding its loan portfolio, coupled with India’s
growing credit demand, positions it well for sustained growth. Its strategic initiatives
in digital banking, rural expansion, and corporate lending further reinforce its strong
outlook.

 HDFC Bank demonstrates stronger overall growth and a larger AUM base,
driven by its diversified business model and expansive reach.
Muthoot Finance, while smaller, maintains stable growth with a focus on
secured lending, ensuring low credit risk and consistent performance.
For aggressive growth and diversified exposure, HDFC Bank stands out. For
stability and resilience in a niche lending market, Muthoot Finance offers
strong value.

Comparison of Net Profit: Muthoot Finance vs HDFC Bank

Year Muthoot HDFC Bank
Finance Net Net profit
Profit (₹ in crores)
(₹ in crores)
2021-22 ₹3,953.65 ₹36,961

2022-23 ₹3,169.73 ₹42,904

2023-24 ₹3,473.50 ₹60,812

62
 NET PROFIT ( ₹ in crores)

₹70,000.00
₹60,812

₹60,000.00

₹50,000.00
₹42,904

₹36,961
₹40,000.00

₹30,000.00

₹20,000.00

₹10,000.00 ₹3,953.65 ₹3,473.50

₹3,169.73

₹0.00
2021-22 2022-23 2023-24

Muthoot Finance HDFC Bank

HDFC Bank’s net profit in 2021-22 was ₹36,961 crores and it increases by 16.1% in
FY 2022-23 which was ₹42,904 crores than it increases again in FY 2023-24 by
41.7% which was ₹60,812 crores.
The net profit declined from ₹3,953.65 crore in FY 2021-22 to ₹3,169.73 crore in FY
2022-23 but recovered to ₹3,473.50 crore in FY 2023-24 with a 9.6% growth.
Muthoot Finance are trying to be maintaining stable profitability that why net profit in
between ₹3,000 crores to ₹ 4,000 crores from FY 2021-22 to FY 2023-24.
HDFC Bank's success stems from its diversified lending strategy, strong retail
presence, and ability to manage risk efficiently. Its consistent growth in net profit
reflects a solid financial framework.
Muthoot Finance's model emphasizes secured lending through gold loans, ensuring
lower credit risk. However, its niche market focus leads to slower profit growth
compared to HDFC Bank.
 HDFC Bank demonstrates stronger financial performance, driven by its diver-
sified operations and aggressive expansion. It outperforms Muthoot Finance in
net profit growth. Meanwhile, Muthoot Finance maintains a stable yet slower
growth trajectory, leveraging its specialization in gold loans.
For investors seeking high-growth potential with diversified exposure, HDFC
Bank is the stronger choice. For those prioritizing stability in a niche lending
market, Muthoot Finance presents a reliable alternative.

63
Risk Profile Analysis: Muthoot Finance vs. HDFC Bank
Muthoot Finance and HDFC Bank are both well-known financial institutions, but
their risk levels vary quite a bit because of how they operate, the markets they focus
on, and the rules they must follow.

1. Business Model Risk

Muthoot mainly offers gold loans, which keeps their business steady but also
makes them vulnerable if gold prices fall.
HDFC Bank is involved in many types of financial services like retail,
corporate, and investment banking. This variety reduces their reliance on one
particular area, lowering risk.

2. Credit Risk
Since Muthoot’s loans are backed by gold, the risk is somewhat controlled.
But if gold prices drop significantly, they might struggle to recover their
money.
HDFC Bank follows strict loan assessment processes and has a wide range of
borrowers, which helps keep their bad loans low.

3. Interest Rate Risk

As a non-banking financial company (NBFC), Muthoot depends on borrowed
funds to lend money. Rising interest rates can increase their costs.
HDFC Bank has a solid deposit base and strong treasury operations, which
help them manage changes in interest rates better.

4. Regulatory Risk
Muthoot follows specific RBI rules for NBFCs, and changes in gold loan
regulations can affect them.
Being a scheduled commercial bank, HDFC Bank must meet stricter
regulations that ensure stability.

5. Market and Liquidity Risk

Muthoot faces risks from gold price swings and their reliance on short-term
loans, which may create cash flow issues.
HDFC Bank’s large customer deposit base keeps them financially stable and
confident in the market.

 Muthoot Finance has a strong foothold in the gold loan market, but since it’s
heavily dependent on gold prices, it’s more at risk if those prices fall. HDFC
Bank, with its diverse range of services, strong risk management, and stable
financial base, offers more security. If you prefer stability, HDFC Bank is the
safer choice. If you’re willing to take some risk for potentially higher returns,
Muthoot Finance might be appealing.

64
Lending Rate Analysis: Muthoot Finance vs. HDFC Bank

 Muthoot Finance and HDFC Bank are well-known financial institutions that
offer gold loans. While both provide competitive interest rates, there are no-
ticeable differences in their trends and strategies. This report looks at how
their lending rates have changed from 2022 to 2024 and what that means for
borrowers.

 Lending Rates Comparison (2022-2024)

Year Muthoot Finance HDFC Bank Interest

Interest Rate Rate

2022 12% - 24% p.a. 9.5% - 16% p.a.

2023 11.5% - 23% p.a. 9.3% - 15.5% p.a.

2024 10.9% - 22% p.a. 9.3% - 17.86% p.a.

 Trends and Insights

 Muthoot Finance

 Muthoot Finance has gradually reduced its gold loan interest rates to attract
more customers. The minimum rate has dropped from 12% in 2022 to 10.9%
in 2024, making borrowing more affordable.
 The maximum rate has also decreased from 24% in 2022 to 22% in 2024,
showing improved risk management and better lending conditions.

 HDFC Bank

 HDFC Bank’s rates have been more stable. The starting rate has stayed around
9.3% - 9.5%, giving borrowers a lower entry point compared to Muthoot Fin-
ance.
 The upper-end rate increased slightly in 2024, possibly due to changing eco-
nomic conditions or revised risk evaluations.

 Factors Influencing Interest Rates

1. Gold Price Movements: Since Muthoot Finance relies heavily on gold-

backed loans, its rates are more sensitive to gold price changes.
2. Economic Trends: Both institutions adjust their rates in response to inflation,
RBI policies, and overall economic stability.
3. Risk Management: HDFC Bank’s wider range of financial services allows
for steadier rates, while Muthoot Finance must adjust rates more dynamically
to manage risk.

65
  Muthoot Finance has reduced its gold loan rates over time, making them more
competitive. However, their rates are still generally higher than HDFC Bank’s.
On the other hand, HDFC Bank offers more stable and predictable interest
rates, which may appeal to risk-averse borrowers. Choosing between the two
depends on whether you prioritize lower starting rates (HDFC Bank) or cus-
tomized gold loan options (Muthoot Finance).

Customer Base Growth (Gold Loan Customers)

Year Muthoot Finance HDFC Bank (No.

(No. of of Customers)
Customers)
2021-22 85 lakhs 12 lakhs

2022-23 88 lakhs (+3.5%) 14 lakhs (+16.7%)

2023-24 92 lakhs (+4.5%) 18 lakhs (+28.6%)

No. of Customers in Muthoot Finance

9,400,000

9,200,000

9,000,000

8,800,000

8,600,000

8,400,000

8,200,000

8,000,000
2021-22 2022-23 2023-24
No. of Customers

Muthoot Finance has 85 lakhs no. of customers in FY 2021-22 than in next year
number increases to 88 lakhs and after that in FY 2023-24 numbers approaches to 92
lakhs customers. Muthoot Finance has significantly larger customer base in the gold
loan segment, reflecting its well-established presence and specialization in this
market. Its steady growth of 3.5% in FY 2022-23 and 4.5% in FY 2023-24 highlights
stable customer retention and incremental expansion.

Muthoot Finance maintains a larger customer base due to its specialization in gold
loans and stronger rural penetration.

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 No. of Customers of HDFC Bank
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
2021-22 2022-23 2023-24

No. of Customers

HDFC Bank has 12 lakhs customers in FY 2021-22, and it increases to 14 lakhs

customers in FY 2022-23 and in FY 2023-24 there are 18 lakhs customers. HDFC
Bank shows faster percentage growth in its gold loan customer base, with a notable
16.7% increase in FY 2022-23 and 28.6% in FY 2023-24. This rapid expansion
reflects HDFC Bank's strategic push to capture a larger share of the gold loan market,
leveraging its extensive branch network and digital initiatives.

Comparison chart of Muthoot Finance and HDFC Bank in Customer

base perspective:

Number of customers

10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2021-22 2022-23 2023-24

Muthoot Finance HDFC Bank

In summary, Muthoot Finance dominates in scale, while HDFC Bank demonstrates

faster growth momentum in this segment. Both companies show positive trends,
catering to different market strategies [stability versus aggressive expansion].

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