Safer Paths of Credit Growth: Banks are becoming big players in the gold lending business

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Prakash Agarwal, Director and Head – Financial Institutions, India Ratings said: “Within the organized segment, growth in the banking sector has been higher than in non-banking. Banks have been quite aggressive in this area over the last two years,” Agarwal said.

Banks have emerged as major players in the gold lending market over the past two years as the pandemic prompted them to seek safer avenues of lending growth. The growth rate of new gold loans to banks was stronger than non-banks over the same period, industry experts said.

RBI data showed that the value of outstanding gold loans from banks increased by 65% ​​yoy between January 2020 and January 2021 and a further 33% between January 2021 and January 2022 to Rs 69,521 crore. In contrast, a recent report by India Ratings and Research showed that the seven largest NBFCs involved in gold lending grew their books by just over 20% between March 2020 and March 2021, before expanding in the nine months to December 2021 slowed .

Prakash Agarwal, Director and Head – Financial Institutions, India Ratings said: “Within the organized segment, growth in the banking sector has been higher than in non-banking. Banks have been quite aggressive in this area over the last two years,” Agarwal said.

Aside from the capital security traditionally associated with gold lending, banks have benefited from the increased acceptance of gold lending as a product. “Of course we took advantage of the market opening in the early months of Covid, but people are now more open to lending on jewelry, especially in states like Maharashtra,” said a top executive at a mid-sized private bank.

For their part, large NBFCs in the gold lending space have begun to take action to fend off bank competition. VP Nandakumar, MD & CEO of Manappuram Finance, told investors in November that some of the company’s high-value clients are being particularly targeted by banks. “We analyzed and found where we lost high-ticket customers. We introduced attractive programs there just to attack high-priced loans,” he said.

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