Gold loans: A place to be in, for banks

Gold loans stood out in banks’ loan portfolio in the first nine months of the current financial year, both in terms of growth and asset quality.

Banks aggressively expanded their loan against pledge of gold ornaments and jewellery (jewel loans) portfolio in the wake of the Covid-19 pandemic.

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During the first nine months of FY2021, banks preferred to lend either against highly liquid collateral such as gold or Government guarantee as they feared the economic downturn would affect customers’ ability to repay loans.

State Bank of India’s (SBI) personal gold loan book jumped four times in six months (up to December-end 2020) to stand at ₹17,492 crore.

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Gross non-performing assets (GNPAs) of India’s largest bank was only at 0.04 per cent of its gold loan portfolio, per the bank’s analyst presentation. The bank, however, did not disclose the size of its agriculture gold loan in the presentation.

Bank of Baroda’s (BoB) agriculture gold loan portfolio was up 29 per cent year-on-year (yoy) to ₹21,116 crore as at December-end 2020 (₹16,325 crore as at December-end 2019).

“When we look at the agriculture side, nearly 40 per cent of the growth that we see in agriculture has come from gold loans. Gold loans are 20-21 per cent of our total agriculture book.

“...And we do hope that going ahead, 40-50 per cent of agricultural growth will come from gold loans,” Sanjiv Chadha, MD & CEO, BoB, told analysts last month.

Risk-averse market

The gold loan portfolio of Thrissur (Kerala) headquartered CSB Bank jumped about 60 per cent yoy to ₹5,644 crore as at December-end 2020 (₹3,523 crore).

Gold loans accounted for 40 per cent of the private sector bank’s total advances against 30 per cent in the year-ago quarter.

“We will not slow down the gold loan growth. We will increase the growth of the other products so that as a proportion (of total advances), gold loan will go down. I think, this (gold loan portfolio) is only about ₹6,000 crore. There is a big public sector bank, which has ₹70,000 crore of gold loans, so gold loan is a place to be in today,” C VR Rajendran, MD & CEO, CSB Bank, told analysts last month.

Federal Bank’s gold loan portfolio registered a y-o-y growth of 67 per cent and crossed ₹14,000 crore in the third quarter of FY2021, per its third quarter analyst presentation.

The proportion of gold loans in total advances in the case of Karur Vysya Bank (KVB) increased to 23 per cent as at December-end 2020 as against 17 per cent as at December-end 2019.

As at December-end 2020, KVB’s gold loan portfolio stood at ₹12,069 crore (₹8,580 crore)

Karthik Srinivasan, Group Head -- Financial Sector Ratings, ICRA, observed that gold prices have been going up and this has been providing comfort to both lenders and borrowers.

“The market is still risk-averse. And banks, especially public sector banks, have been offering gold loans at relatively finer rates. So, that is an option that many people are availing,” he said.