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

In May, C S Setty, MD, State Bank of India had observed the slope has ramped up the installation of golden loans crossed the state and that has helped turn the portfolio to Rs 20,000 crore arsenic connected March 31, 2021.

Gold loans person go the fastest-growing large indebtedness conception for banks successful a twelvemonth erstwhile the persisting pains of the pandemic person led lenders to look for low-risk growth. Outstanding loans against golden jewellery stood astatine Rs 62,926 crore arsenic connected August 27, 66% higher connected a year-on-year (y-o-y) basis, arsenic per sectoral information enactment retired by the Reserve Bank of India (RBI).

Lending against golden has been seen arsenic the safest signifier of retail lending, astatine par with lodging loans. In the past fewer years, nationalist assemblage banks, too, person made an assertive propulsion successful the conception successful bid to turn their retail books securely.

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

Analysts astatine Motilal Oswal Financial Services person pointed retired that contempt the regulatory arbitrage of higher LTV ending successful March 2021, banks person continued aggressively disburse golden loans.

“To this end, players similar Manappuram Finance person embarked connected offering competitory involvement rates to precocious ticket-size golden indebtedness customers and person been capable to triumph backmost specified customers from banks and immoderate of the different golden indebtedness NBFCs,” they noted.

In May, C S Setty, MD, State Bank of India had observed the slope has ramped up the installation of golden loans crossed the state and that has helped turn the portfolio to Rs 20,000 crore arsenic connected March 31, 2021.

“Having established the facilities, we spot determination are opportunities of different Rs 10,000 crore successful the existent fiscal year. Also, you indispensable retrieve that golden indebtedness is simply a precocious churning game. This means that if you privation accordant growth, you indispensable bash much fig of loans,” Setty said. The lender besides had plans to ramp up agriculture golden loans by astir Rs 4,000-5,000 crore successful FY22.

However, the 2nd question of the pandemic successful April and May severely wounded collections from golden loans crossed lending institutions. Borrowers were often incapable to question to enactment successful further margins to screen for the rising prices of golden and that resulted successful galore accounts turning non-performing.