Gold loans turn fastest-growing segment as banks lean on safety

Asia's Tech News Daily

Gold loans turn fastest-growing segment as banks lean on safety
© Provided by The Financial Express In May, C S Setty, MD, State Bank of India had observed the bank has ramped up the facility of gold loans across the country and that has helped grow the portfolio to Rs 20,000 crore as on March 31, 2021.

Gold loans have become the fastest-growing major loan segment for banks in a year when the persisting pains of the pandemic have led lenders to look for low-risk growth. Outstanding loans against gold jewellery stood at Rs 62,926 crore as on August 27, 66% higher on a year-on-year (y-o-y) basis, as per sectoral data put out by the Reserve Bank of India (RBI).

Lending against gold has been seen as the safest form of retail lending, at par with housing loans. In the last few years, public sector banks, too, have made an aggressive push in the segment in order to grow their retail books securely.

In August 2020, the RBI had increased the permissible loan-to-value (LTV) ratio for loans against pledge of gold ornaments and jewellery for non-agricultural purposes to 90% from 75%. The rule was applicable up to March 31, 2021.

Analysts at Motilal Oswal Financial Services have pointed out that despite the regulatory arbitrage of higher LTV ending in March 2021, banks have continued aggressively disburse gold loans.

“To this end, players like Manappuram Finance have embarked on offering competitive interest rates to high ticket-size gold loan customers and have been able to win back such customers from banks and some of the other gold loan NBFCs,” they noted.

In May, C S Setty, MD, State Bank of India had observed the bank has ramped up the facility of gold loans across the country and that has helped grow the portfolio to Rs 20,000 crore as on March 31, 2021.

“Having established the facilities, we see there are opportunities of another Rs 10,000 crore in the current financial year. Also, you must remember that gold loan is a high churning game. This means that if you want consistent growth, you must do more number of loans,” Setty said. The lender also had plans to ramp up agriculture gold loans by around Rs 4,000-5,000 crore in FY22.

However, the second wave of the pandemic in April and May badly hurt collections from gold loans across lending institutions. Borrowers were often unable to travel to put in additional margins to cover for the rising prices of gold and that resulted in many accounts turning non-performing.

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