The Hindu Business Line : Urban co-ops unhappy with 90-day norm for gold loans

THE recent circular of the Reserve Bank of India directing the urban cooperative banks (UCBs) to implement a 90-day NPA norm for gold loans with effect from March 31, 2005, has come as a surprise to those in this sector.

"A humane approach is missing while fixing the 90-day NPA norm for gold loans" is the common refrain of the people in this sector.

Most of the gold loans are concentrated in semi-urban and rural areas. A majority of the borrowers opt for this loan when they have no other option to raise money.

According to the General Manager of Sri Gokarnanatha Cooperative Bank, Mangalore, Mr P.A. Poojary, middle class people are the major clients for UCBs.

Sources in the UCBs said that a majority of people from this stratum of society want to keep their loans secret. They do not want others to know about them taking gold loans, as it may affect their "prestige" in society. Since the situation is sensitive, issuance of notice to the borrower after 90 days may affect the business of the bank, they feel.

Even those in the credit cooperative societies, though they do not come under the UCBs, express similar views on the RBI directive on gold loans.

Mr Sudhir Kumar, General Manager of Mangala Credit Cooperative Society, Mangalore, said that the Government should consider reviewing the 90-day NPA norm on gold loans, as this category of loan constitutes a major chunk of business of cooperative banks. Apart from this, the recovery rate is good in the case of gold loan.

Mr K.K. Saralaya, Director of the Karnataka State Apex Cooperative Bank, feels that the Government should take note of the fact that gold loans are taken on a one-year term basis as the borrowers need time to repay the amount.

However, the President of the South Canara District Central Cooperative (SCDCC) Bank, Mr M.N. Rajendra Kumar, who welcomed the RBI circular, said that the 90-day norm would streamline the operations of cooperative sector.

According to the bankers, in the case of gold loans granted for agricultural purposes interest is required to be charged at yearly intervals and the payments should coincide with the harvesting of crops.

Accordingly, such advances will be treated as NPA only if instalments or principal and/or interest become overdue after that date.

Cropping pattern is the deciding factor for repayment of gold loans in rural areas. Recounting his experience in rural banking, Dr N.K. Thingalaya, former CMD of Syndicate Bank, said that the number of gold loans increases during the beginning of cropping season.

The rate of repayment will be highest during the harvesting season, he added.

More Stories on : Non-Performing Assets | Gems & Jewellery | Co-operatives

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