The Hindu Business Line : And now... jewellery loans

Is that piece of jewellery you're eyeing outside your budget? Several public and private sector banks are now willing to lend you the money. Just flash your pay slip and that extra glitter could be yours.

One more marriage season is upon us. And as wedding bells toll, it is the cash registers at the jewellers that are ringing loudly. The newspapers are full of advertisements from shops proclaiming their ware and inviting customers to loosen their purse strings.

But that's routine, you would say. However, the difference this time is that there is a sweetener thrown in — a loan scheme offered by some banks for the purchase of jewellery. Indian Bank, South Indian Bank, State Bank of Hyderabad and Standard Chartered are among the banks offering to lighten your burden. Faced with a drop in demand for commercial loans, banks have been looking for alternatives, and have begun focussing more on retail loans during the past three years. The loan for jewellery purchases is the latest scheme to woo individual customers, after plying them with loans to buy houses, cars, consumer durables, and personal loans for other needs.

Officials of Indian Bank, which figures prominently in the advertisements, say their marketing surveys showed the need for such a product. More than 1,000 customers were asked about their financing needs and where the bank could make a difference. The feedback showed there an interest in jewellery loans. Also, the respondents showed a marked preference for certain designated shops — for reasons of trust and sentimentality.

"This is a value-for-money product for our customers, especially working women. And it is a good saving for their children, too," says a bank officer.

Indian bank's `IB Swarna Abharana Scheme' has tie-ups with nearly 10 top jewellery stores. The bank even deployed its officers in some of the shops during peak hours to gauge the demand and provide spot approval for loan applications.

Flash your pay slip

Officials say the loan scheme is targeted at the salaried class. "This loan is not for the business class, who can afford to purchase jewellery with relative ease. We are offering this loan to the salaried class, especially women, to foster their financial independence." The loan application is usually cleared within 48 hours, they add.

Loans ranging from Rs 10,000 to Rs 2 lakh are available, depending on the salary of the borrower. The limit fixed is 10 times the borrower's salary. All that is required is a salary slip, form 16 of the IT Act, two passport-size photographs, a couple of post-dated cheques and proof of residence.

The repayment options, using equated monthly instalments (EMIs), range from one to five years. The rate of interest is 10.5 per cent on a diminishing balance. South Indian Bank's `Stree Shakthi' and SBH's `Shubah Vivaha Scheme' have similar features.

Indian Bank officials say the scheme has met with a good response, but would not reveal any figures. The scheme was launched in the southern States a few months ago and there is demand for similar launches in other parts of the country too. But the bank has not set any targets yet as this is only the first year of the scheme.

A `clean loan'

What's the jeweller's take on these loan schemes? Has their business picked up? (When has it ever fallen, you might ask, since India is the largest consumer of gold jewellery? Despite a 20 per cent rise in prices, the country bought 568.7 tonnes of gold in 2003, up by four per cent from the previous year.) At Prince Jewellery, a leading shop in Chennai, a salesperson said that about 500 to 600 customers had availed of the loan scheme since its launch in August.

Says Sunil Cherian, managing partner of Kerala Fashion Jewllery (KFJ), another leading jewellery store, "We are marketing the scheme to borrowers by pointing out that the jewellery is only going to be used for a rare occasion. Why block their finance for that? Instead, they could buy and pay over a period of time."

What about the risk of default? This is a "clean loan" in banker parlance. Or, what is called a loan without collateral or margin. So how does one ensure that the borrower honours his or her commitment? Bank officials say they have not encountered problems on this score. "We do our due diligence. We implement the `know your customer' (KYC) guideline thoroughly. Only then do we give the loan. Besides, we get an undertaking from the employer to make appropriate deductions in salary and remit the amount to us, if necessary."

Personal loans constitute a tiny 3 per cent of all bank lending... a mere Rs 30,000 crore from a total of Rs 9,00,000 crore, of which loans for jewellery would be an even tinier fraction.

Given the conservative bent of mind in Indian society, would people incur debts on gold purchases? Answering this question Cherian says, "Five years ago, gold hovered between Rs 300 and Rs 400 per gram. Now it is about Rs 580 per gram. Of late, gold is more like platinum. It never falls dramatically."

But not everyone is enamoured of the loan offer. For instance, Prema, a working woman in Chennai, argues that a combination of sales tax, labour charges and wastage charges make a dent in the jewellery buyer's return on investment, irrespective of the reigning gold prices. "If you factor in the interest cost of 10 to 11 per cent, then it appears that the dice is loaded against the borrower," she says. Nevertheless, she concedes that in certain situations — an emergency or a sudden wedding in the family — she may still opt for the loan. Otherwise she would rather invest in coins — where there is no making charge or loss of purity — as these offer greater liquidity.

Cherian's store has received nearly 1,000 enquiries and 500 walk-ins. As many as 100 loans have been approved. He expects the trend to continue for another month. He also foresees many more private banks joining the loan-for-jewellery bandwagon.

Some might argue that such schemes seem to encourage the practice of dowry by unwittingly strengthening the hands of the dowry-giver. "Why don't you look at it from a different angle? We make the father's work easy. We are trying to make our customer happy. We are offering the scheme to the salaried class, especially those earning between Rs 8,000 to Rs 15,000 a month and who cannot invest money in gold jewellery at one go," says Cherian."

Picture by Bijoy Ghosh

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