Large public sector banks such as State Bank of India (SBI) and Bank of Baroda (BoB) are gradually building up their agriculture gold portfolio as assessment of the loan amount as well as recovery is relatively easy.
SBI’s agriculture gold loan portfolio saw healthy growth in FY23, rising to ₹83,000 crore on March 31, 2023 from ₹73,600 crore on March 31, 2022.
The size of the agriculture gold loan portfolio of India’s largest bank was three times its retail gold loan (“general purpose personal loan against the pledge of gold ornaments”) portfolio (of ₹28,705 crore) as of March-end 2023.
BoB’s agriculture gold loan portfolio grew by 30.47 per cent to ₹35,829 crore as of March-end 2023 from ₹27,459 crore as of March-end 2022.
The contribution of agriculture gold loans in total agriculture advances increased to 28.49 per cent in FY 2023 from 25.14 per cent in FY 2022 and 22.30 per cent in FY 2021, per BoB’s annual report.
Gold loans can come in handy for a farmer when the credit limit fixed by a bank under the Kisan Credit Card (KCC) scheme (which enables farmers to readily purchase agriculture inputs such as seeds, fertilizers, pesticides etc., draw cash for their production needs, and take care of their investment credit requirements) falls short of his actual requirement.
For banks, recovery of agriculture gold loans is simple as in case of a default, the pledged gold can be auctioned. But in the case of a normal agriculture loan, the recovery process could be drawn out as enforcement of security provisions on mortgaged farmland is generally done through the Revenue Recovery Act of respective states, entailing involvement of state authorities.
Banking expert V Viswanathan observed that banks normally prefer gold loans due to the ease of assessment of the eligible loan amount and recovery by auctioning without legal intervention.
In addition, gold loans under the agriculture segment are preferred by bankers as the bank’s priority sector lending targets can be met under general agriculture and loans to small and marginal farmers sub-segments.
“Farmers prefer agriculture gold loan as against personal gold loans since the interest rate is 7 per cent for crop loans up to Rs.3 lakhs and they are eligible for an interest subsidy of 3 per cent if the said loan is paid/ renewed before the due date. So, the effective interest rate works out to 4 per cent,” said Viswanathan.