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Lenders prepare for rise in gold loan demand in FY21


Mumbai/Bengaluru: Demand for loans against gold is likely to increase this fiscal as easy approvals, surging value of gold and risk aversion by lenders push people to pledge their precious metal in exchange for cash.

Lenders are already seeing an increase in demand for these loans and some have started new gold loan verticals with expectations that it will become the fastest growing segment this fiscal.

“There is a new class of customers looking to generate cash by pledging gold because banks are now wary of extending unsecured loans like credit cards and personal loans because of the post Covid slowdown.

Gold loans are a quick way for people to access cash when other avenues are not open,” said CVR Rajendran, CEO at CSB Bank.

Rajendran said that as new kind of customers come in his bank has seen the ticket size for gold loans increase to Rs 80,000 to Rs 85,000 from about Rs 60,000 to Rs 70,000 previously. He expects the proportion of gold loans to increase to 35% in CSB’s loan book up from 31% at the end of March.

Gold loans for CSB will grow at 30% even as segments like SME, mortgages and corporate loans face challenges.

Even large public sector banks which were earlier not so keen on this business are seeing value in pursuing this opportunity.

Canara Bank has for example set up special branches to tap this opportunity to finance small business people which want to plegde their gold.

“A lot of people are in distress, out of jobs and need money to start their lives afresh. We have 750 branches focusing on gold loans, apart from 49 gold loan plazas, which will handle only gold loans. We are seeing a good response in the South,” sais A Manimekhalai, excecutive director at Canara Bank.

The bank’s total gold loan portfolio is at Rs 56,000 crore after acquiring Syndicate Bank at the start of the fiscal.

Federal Bank another lender with a strong presence in South India has seen a 8% growth in gold loans so far in the first quarter of the current fiscal, said Mohan K, country head, agri, micro and rural banking at the bank.

Even NBFCs like Kerala based Muthoot Fincorp for whom loan against gold is the main business is expecting higher demand. The company has launched a special scheme for small retailers and businesses to cash in on this demand.

“Small businesses are finding it difficult to get unsecured loans in these times so gold loan demand is rising.

We have already disbursed Rs 500 crore in the last 45 days through a new product for this segment. We expect demand to be strong for the whole of this fiscal and expect to do better than last year,” said Thomas Johm Muthoot, MD at Muthoot Fincorp.

The company is offering gold loans at 21% per annum down from its normal rate of 23% and is giving a six month moratorium for new borrowers under this scheme.

Gold loans also are less risky for lenders as rising gold prices means the loan to value ratio is always kept in check. On Wesnesday, MCX August gold futures rose about 0.4% to a new high of?48,420 per 10 gram, surpassing previous high of Rs 48,289.


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