Safer paths to credit growth: Banks are becoming big players in gold lending

Prakash Agarwal, Director and Head of Financial Institutions, India Ratings, said: “Within the organized segment, the growth of the banking sector has been higher than that of non-banks. Banks have been quite aggressive in this space over the past couple of years,” Agarwal said.

Banks have become big players in the gold loan market over the past two years as the pandemic has caused them to seek safer avenues for credit growth. The growth rate of new gold loans from banks has been higher than from non-bank lenders over the same period, industry experts said.

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

Prakash Agarwal, Director and Head of Financial Institutions, India Ratings, said: “Within the organized segment, the growth of the banking sector has been higher than that of non-banks. Banks have been quite aggressive in this space over the past couple of years,” Agarwal said.

In addition to the capital security traditionally associated with gold lending, banks have been able to take advantage of the increased acceptability of gold lending as a commodity. “Of course, we took advantage of the market opening in the early months of Covid, but now people are more open to mortgage jewelry, especially in states like Maharashtra,” a senior executive said. a medium-sized private bank.

For their part, the big NBFCs in gold lending have started to take steps to fend off competition from banks. Vice Chairman Nandakumar, MD and CEO of Manappuram Finance told investors in November that some of the company’s high-value clients were particularly targeted by banks. “We analyzed and found where we lost high-priced customers. There we introduced attractive schemes just to attack expensive loans, he said.

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