Dhanlaxmi Bank to grow gold loan business

Banks are likely to gain from the restrictions imposed on gold loan companies by the Reserve Bank of India.

In fact, old generation private sector bank, Dhanlaxmi Bank is looking to increase its gold loan portfolio from 8 per cent of total loans to 20-25 per cent in the current financial year, said Mr P. G. Jayakumar, Chief Executive Officer.

The bank's gold loan portfolio is expected to increase from Rs 750 crore as at March-end 2012 to Rs 2,500 crore by March-end 2013.

Speaking to newspersons in Mumbai on Monday, Mr Jayakumar said gold lending is a very attractive and secure business and many banks are aggressively pursuing it. The RBI is perhaps more comfortable with banks doing this business than NBFCs because banks follow the required Know Your Customer norms before giving loans.

For banks, too, it is a safe product since it is a secured loan, he added.

In 2012-13, the bank is looking to increase its retail loan book and within that the share of gold loans.

Last month, the RBI directed gold loan NBFCs not to exceed the loan-to-value (LTV) ratio of 60 per cent for loans granted against the collateral of gold jewellery. Further, such NBFCs must maintain a minimum Tier-l capital of 12 per cent by April 1, 2014.

The RBI also said that NBFCs should not lend against bullion or gold coins.

A recent report by credit rating agency Crisil said that RBI's guidelines for the gold loan companies will significantly moderate the sector's growth and profitability over the next year.

Business growth is likely to fall from 80 per cent per annum to 20-25 per cent per annum.

The LTV cap is likely to result in significantly lower growth rates, as the borrowers will have to bring in additional jewellery to get a loan of the same amount.