Safer avenues of credit growth: Banks turn big players in gold loan

Banks have turned significant players in the gold loan market over the last two years as the pandemic made them look for safer avenues of credit growth. The rate of growth in fresh gold loans at banks has been stronger than at non-bank lenders over the same period, industry experts said.

RBI data showed that the value of outstanding gold loans by banks jumped 65% year-on-year between January 2020 and January 2021 and another 33% between January 2021 and January 2022 to Rs 69,521 crore. In contrast, a recent report by India Ratings and Research showed that the top seven NBFCs engaged in the gold loan business grew their books at just over 20% between March 2020 and March 2021, before slowing down over the nine-month period to December 2021.

Prakash Agarwal, director and head – financial institutions, India Ratings, said, “Within the organised segment, growth in the banking sector has been higher vis-a-vis non-banks. Banks have been fairly aggressive in this space over the last two years,” Agarwal said.

Apart from the safety of capital traditionally associated with gold loans, banks have been able to cash in on the increased acceptability of gold loans as a product. “Of course, we took advantage of the market opening up in the early months of Covid, but people are now more open to mortgaging jewellery, especially in states like Maharashtra,” said a top executive with a mid-sized private bank.

On their part, large NBFCs in the gold loan space have started taking measures to fend off competition from banks. VP Nandakumar, MD & CEO, Manappuram Finance, told investors in November that some of the company’s high-value customers were especially targeted by banks. “We have analysed and found where we lost high-ticket customers. There we have introduced attractive schemes just to attack high-ticket loans,” he said.

from Banking & Finance – The Financial Express https://ift.tt/EBfYK4t