Banks’ performance glitters thanks to spike in gold loans
PremiumGold loans more than doubled to ₹60,464 crore in FY21 from ₹26,192 crore a year earlier
Banks have reported a surge in gold loans in the year ended 31 March, driven by rising gold prices and risk-averse lenders demanding collateral for loans.
Gold loans of banks have more than doubled to ₹60,464 crore at the end of 31 March from ₹26,192 crore a year earlier, according to the Reserve Bank of India (RBI).
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Among banks, State Bank of India (SBI), Bandhan Bank and private sector banks in south India saw the sharpest growth in gold loans during the financial year. SBI saw a nearly sixfold rise in gold loans. Its gold loan book stood at ₹20,987 crore as of 31 March.
SBI’s proportion of gold loans is only 2% of its overall retail loan book of ₹8.7 trillion, but the bank has relied on these secured loans to drive its credit growth this year.
“We have ramped up the facility of gold loans across the country. There are opportunities of another ₹10,000 crore in the current financial year. Also, you must remember that a gold loan is a high-churn game. This means that if you want consistent growth, you must do more loans. So, the growth rate may slow down in FY22, but we will maintain the level of ₹30,000 crore by the end of the financial year in personal gold loans," C.S. Shetty, managing director of SBI, said after reporting the firm’s fourth-quarter earnings.
Since June last year, loans against gold surged even as lending to other segments was affected by asset-quality concerns. Private sector Federal Bank saw a 70% year-on-year growth in gold loans in the previous financial year.
Ashutosh Khajuria, executive director of the bank, attributed the growth to the rise in gold prices. The price of gold rose by 8.28% over the last financial year, touching a high of more than $2,000 per ounce in August last year. However, he believes that the kind of growth rate seen in FY21 may not be repeated this year.
“If the rupee appreciates, then you will have a lower rupee cost of gold... but if the rupee depreciates, then I think in all likelihood once again you will have a higher per gram price," said Khajuria.
“It is a good business to do, but probably a 70% type of growth on a very high base may not be possible to repeat. So, 30% or 40% type of growth is something that we definitely would be targeting," he added.
Separately, banks also benefited from the RBI’s move to allow them to lend up to 90% of the loan-to-value (LTV) ratio. This is the amount of loan that can be given against the value of the collateral. This dispensation came to an end on 31 March.
According to a CRISIL report, “Banks’ incremental disbursement LTV was higher at 78-82% because they were more aggressive than NBFCs in lending against gold during the last fiscal. Much of the growth in their book came during the third quarter of last fiscal when gold prices were soaring."
The lower interest rate on gold loans offered by banks is another reason why customers have started borrowing from banks rather than non-banking financial companies (NBFCs). Currently, banks charge 7.5-9% on gold loans compared to 11-12% by NBFCs.
“Last year, our gold loan growth was so good because NBFCs were not at all active in the field. Once the customer comes out of NBFC and comes to a bank, he will not go back to NBFC because the value proposition in a bank is better, the rates are very good. So, whatever we gained during that period, we will retain," C.V. Rajendran, managing director and chief executive of Catholic Syrian Bank, told investors in a conference call after announcing its fourth-quarter earnings.
“This pandemic will probably help us acquire more new clients from the higher interest segment, which should be good for us. It is a good value proposition for the borrower; it’s a win-win situation," he added.
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