Allocation and Distribution of Gold Loan among the prospective consumers and borrowers: Firstly gold loans have been instrumental behind generating funds for investment in the economy. Whenever the borrower has taken money from the banking institution, he has initiated the process of credit regulation whereby a certain percentage of the money was reserved in the bank account of the borrower as Cash Reserve Ratio or Statutory Liquidity Ratio and the rest of the money was regulated in monetary terms as a credit facility. The borrowers would further use this quantum of money to buy construction equipment, land and machinery and ancillary parts that would accelerate the production and manufacturing process thereby encouraging the borrowers to invest more money into the system. Fund Generation has been one of the biggest functions of lending institutions generating revenue conditions and allowing the borrowers to invest money in the economy. For example- Eligibility of the Vijaya Bank Gold Loan is that the borrower must have a monthly income of minimum 15,000.
Eradicating the Loan Burden of the Borrowers: The second important function that gold loans have performed is to resolve an economic crisis for the borrowers. At times due to the debt burden under which the borrower falls owing to the lucrative credit options that are made available to them. Sometimes you will find that the telecallers on behalf of the banking authorities in which you have a personal or a business account would call you over the phone and encourage you to have a credit card so that you can purchase items on credit, the amount of money which you will repay on a monthly instalment basis. However, at times the borrower falls into the debt trap by making continuous consumption using the credit card option and thus accumulates the debt amount through the purchase of unnecessary commodities that falls quite below in the priority list for the borrowers which are now considered to be very insignificant items in the category of purchase. Resolving of Debts is one of the most important processes that are performed through disbursal of gold loans as the amount of money received by the borrower in this regard helps him to resolve the existing debts that the borrowers already possess. By taking gold loan from the banking institutions the borrowers receive money from the bank which can be used to pay off the debts of the borrowers and thus reduce the amount of existing financial burden on the borrower's shoulders.
Liquidity Financing of the Deposited Collateral Security: Finally among the most important functions that it performs it is critical in leveraging the amount of gold jewellery and ornaments that would have been lying unused had the borrowers not taken them out of their coffers and invested them in productive purposes. At times owing to the conservative attitude of the borrower's and their preconceived notion that the gold ornaments are more valued if kept hidden in the lockers damages the value of the ornaments and they are not put to any productive use upon favourably important processes. Thus it is very important to understand the true worth of gold and utilize it effectively so that it can be used to leverage credit conditions in the economy.
Conclusion: Thus gold loans must help in maintaining the process of credit functioning regularity thereby ensuring viability in credit rationing.
