Banks planning to expand loan against gold segment to boost their lending biz

Giving loan against gold has boosted lending business of banks, thus many banks and non-banking finance companies are planning to expand this business. In the past few months monetization of the yellow metal has increased in the country. Previously loan against gold was limited to south Indian states where NBFCs like Mannapuram General Finance and Muthoot Finance have strong hold and are aggressively expanding their base in this segment.

According to Ajay Mitra, managing director- India, Middle East & Turkey, and World Gold Council, the monetization of yellow metal will open new sector and increase the circulation of roughly 18,000 tones (worth approximately Rs 30 lakh crore at current prices) back into the economy.

Mitra further said, “Acceptance of gold for loans by banks and financial institutions is an important development that will infuse greater confidence in gold as an asset class. With banks entering gold bar business, availability of infrastructure for storage, and with medallions being accepted for securitization purposes, the role of gold is surely bound to change from a commodity to a monetized asset that would encourage consumers to invest more in gold, a time-tested secure and now a monetized asset class.”

The banks like State Bank of India (SBI), Andhra Bank and HDFC Bank have already entered into this segment with big boom.

Up till now the total anticipated market size of loans against gold is marked at Rs 1,20,000 crore in which 50% of market share is of organized sector like banks and financial institutions. And rest of gold is being deposited with NBFCs and small players like money lenders. SBI has a loan portfolio of Rs 300 crore against gold.

Biju Pillai, executive vice-president & business head, gold loans, HDFC Bank, told, “The bank’s portfolio has been growing at over 60% year-on-year for the last two years. With the opportunity being vast, we will continue to look to grow this portfolio. We plan to increase the number of branches offering gold loans from 150 to 600 over the course of next year.”

Pillai said, there is variation in interest rates which lies between 12% and 15.25%, depending on the tenure of the loan and borrowers’ relationship with the bank.

Andhra Bank, a state-owned bank in just eight-month has witness growth in the segment thus it has ambitious plans to offer loans against gold through all its branches within a couple of month.

M Anjaneya Prasad, general manager (Mumbai zone) of Andhra Bank, said, “We have projected the target to achieve Rs 50-crore loan disbursement as against Rs 10 crore in 2009-10.’’ At present gold loan is being provided at 60 branches of the bank

“We are planning to involve all the branches of the bank for the business by June.’’ Generally Andhra Bank gives 75% of value of gold pledged as loan and is planning to have one value per branch for the appraisal of gold while finalizing loans.

Prasad told the customers will have to bore the fee to be charged by the value.

An anonymous senior official of Mannapuram General Finance, the traditional player of the segment said, the company is targeting to achieve a business growth of Rs 4,500 crore under the segment as against Rs 2,550 crore in 2009-10.

The official added, “Thus, we are looking at a business growth of 50-100% under the segment during the current financial year.”

NBFC offer rate of interest between 12% and 21% depending on the value of the gold pledged.

The rate of interest for the NBFC varies between 12% and 21% depending on the value of the gold pleged.

Though the repayment period can be stretched to one year, in most of cases, Mannapuram gets its loans repaid by customers over a period of 100 days, said the official.