Kotak Mahindra Bank (KMB) is gradually activating its branches to give gold loans in view of healthy demand, according to a senior official. This is notwithstanding the fact that growing the loans against gold jewellery (LAGJ) portfolio is akin to running on a treadmill as these loans get repaid within a year.

Banks’ LAGJ portfolio grew by a robust 22.1 per cent year-on-year to stand at Rs 96,265 crore as at August 25, 2023 against Rs 88,428 crore as at August 26, 2022, per latest RBI data.

“So, it’s a small business we have started. In the last year, we added close to 150 branches for gold loans...We are slowly activating our branches for gold loans. It’s a product that takes time to build because the infrastructure has to be ready,” said Manish Kothari, President & Business Head -- Commercial Banking, KMB.

He underscored that the gold loan business is very intensive when it comes to infrastructure and operations, requiring a branch to be ready to be ready to handle the customers who come in with all their gold jewellery, having tie-ups with the assayers who have to come to the branch to assess the value of the gold jewellery, and have safekeeping measures.

“So that’s the piece we are putting in place in terms of building it out. I guess we will be growing (the portfolio) at 30-40 per cent…Gold loan business is a treadmill type of business because it’s a loan which people close very fast.

“Not too many people keep the loan for more than 7-8 months. So, you are constantly on a treadmill in terms of continuing to replenish the book and getting newer customers,” Kothari said.

He noted that this is a loan which people prefer to take in times of need. Majority of the customers do not renew their gold loan because it’s a requirement which fulfils an emergency or an immediate kind of need.

“You will have one-third of the customers who will prepay the loan as their need is over and will take the jewellery back. It is not a permanent kind of a requirement…it’s not like a manufacturer, who needs a working capital line, which is permanent,” he said.

Currently, KMB disburses gold loan through about 560-570 branches, covering about 32 per cent of the total branch network of the bank.