In June, State Bank of India started its agriculture gold loan scheme. in the first six months of 2007-08 (April-September) has recorded an increase of Rs 490 crore in agriculture gold loans to Rs 2,279.
According to the figures given by SBI, the number of agriculture gold loan accounts in April-September has gone up by 119,000 to 757,642. “SBI is the country’s only bank, which has modified its agri gold loan scheme to create a running cash credit account for the farmer, reducing his risk in carrying gold from village to bank every year for loan sanction,” K J Taori, general manager, agriculture business unit of SBI, said.
The scheme also helps farmers save on interest costs due to an ongoing deposit/withdrawal facility, and does away with the need to await sanction of a fresh limit every sowing season and store gold at home, directly serving as a safe deposit, according to SBI. Banks have a demand loan facility, whereby farmers pledge gold against credit.
Hence, under demand loans, the gold is returned to the farmer once he had paid back the loan. If the farmer requests for the fresh credit, he has to redeposit the gold, pay charges for re-assaying, and for completing other formalities.
According to Taori SBI’s rates of interest for agriculture gold loans are much cheaper at 57 paise per Rs 100 a month against Rs 3 charged by non-banking finance companies and 4-5 rupees charged by private money lenders.
Usually, private money lenders give discount on the original amount to be lent by deducting the interest, which, however, is calculated on the original amount and works out substantially higher, Taori said.
According to SBI analysis, gold loans for agriculture are one of the safest advances, registering low non-performing assets of 0.33 per cent against an outstanding of Rs 1,715 crore as of December 31, 2006.
Taori said, a further advantage of financing under this portfolio is moderating of the bank’s capital adequacy ratio as RBI has reduced the risk weighting on loans up to Rs 1 lakh from 125 per cent to 50 per cent. “Considering these benefits, we have encouraged our branches to lend more against gold and silver ornaments,” Taori said.
He informed while from June 2007, the modified agriculture gold scheme has been extended throughout India and has picked up well in Andhra Pradesh, Tamil Nadu, Kerala, and Karnataka. SBI is expecting for the scheme to pick up in northern and central India in the next kharif season.
“In terms of advances, our target for the current financial year is at par with last year, with another 5-bln-rupee loans expected to be added by March. However, we expect advances and loan accounts to increase sharply by the forthcoming kharif season,” Taori said. SBI shares closed at Rs 2,465.6 on the National Stock Exchange, up 2.6 per cent from Monday.