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The Hindu Business Line
October 10, 2021
Gold loans have not lost the sheen
Over the last decade, the rise of NBFCs that focus on gold loans has been well-chronicled by the media. They are now widely acknowledged as being instrumental in formalising an activity hitherto the preserve of shadowy moneylenders and pawnbrokers operating away from regulatory oversight. Banks were largely uninterested in gold loans, giving a free run to the unorganised players until their dominance was challenged by gold loan NBFCs. But these days, we see the private and public sector banks make a vigorous play for gold loans.
According to the RBI’s latest monthly data on sectoral deployment of bank credit, the gold loans portfolio of banks stood at ₹62,926 crore as of August 27, 2021. Compared to ₹37,860 crore a year ago, that is a jump of 66 per cent in one year. Go further back and, in August 2019, it stood at just ₹26,542 crore. Clearly, banks in India are now a rising force in the gold loan space.
Favourable treatment
What explains the spectacular growth in the gold loans portfolio of the banking sector over the last one year? There’s no doubt that favourable treatment by the regulators was an important factor.
Early in August 2020, the RBI had announced an increase in the loan-to-value ratio on gold loans given by banks (from 75 per cent to 90 per cent) up to March 31, 2021, to provide relief to borrowers affected by the pandemic. That relaxation was not extended to NBFCs, and it opened up a limited-time window of competitive advantage for banks that was duly exploited by them.
Another reason was that sporadic lockdowns had a milder impact on the organised sector, whose digital reach and capabilities are much greater. Corporate India, for instance, reported higher-than-expected profits in the lockdown-affected quarters even without gain in volumes, thanks largely to the cost cutting enabled by their digital reach.