Gold loans shine among small businesses

CHENNAI: There is heightened interest for gold loans among borrowers as more farmers, small merchants and businesses kick-start stalled economic activity. Gold loans are the easiest and the fastest to be processed and disbursed and, with the rising rates of the yellow metal, more money is now available for the same gram. According to RBI norms, 75% of the value of pawned gold can be lent.
Sample this: Private lender City Union Bank has seen a 7% spike in gold loan disbursements (when the normal average growth is 3%). Also, the average ticket size has doubled from Rs 2 lakh to Rs 3.5-Rs 4 lakh. The demand has increased in districts that fall in green zones, like Thanjavur, Madurai and Trichy in Tamil Nadu, indicating resumption of economic activity.
“We have disbursed Rs 60-crore gold loans, of which Rs 40 crore are new sanctions, in the last one month. The cost of borrowings stands at an average of 11% for gold loans and 9% for priority sector agri-gold loans,” said City Union Bank DGM R Lakshminarayan.

Non-banking finance company Manappuram Finance said the average ticket size of loans in this segment has seen a marginal rise from about Rs 38,500 to Rs 41,000, driven by higher gold prices. “With resumption of business operations, there is some uptick in demand. Though it is yet to come back to pre-lockdown levels,” its MD and CEO V P Nandakumar said.
“Understandably, metro and urban locations are seeing higher demand, as we are yet to see a material uptick in rural and semi-urban areas. However, new customer acquisition had come to a halt during the lockdown,” he said.
The lender expects a 10%-12% YoY growth this year. Another private lender IIFL Finance has disbursed over Rs 700 crore in May 2020. Its head of gold loans product, Saurabh Kumar, said, “The demand for gold loans has gone up significantly after resuming operations in tier-2 and -3 cities where we have significant presence. Initially, we didn’t see a big spike in numbers because of mobility restrictions. However, towards the last week, footfalls in branches increased along with disbursal of loans. Top-ups on existing loans contributed more than 15% of overall disbursals.”
The SBI, in its March quarter earnings statements, said it has sanctioned 4.5 lakh new gold loans in FY20. The bank also said personal gold loans have received excellent (compared to previous year) response. Federal Bank said they have seen a 10x spike in demand for gold loans in May over April, with over a fourth from tier-2 and -3 centres.
The bank’s VP Mohan K said, “Gold loan demand shot up nearly 10x in May, with the average ticket size rising from Rs 1.1 lakh to Rs 1.5 lakh in the last one month.”
State-owned Indian Bank, which merged Allahabad Bank with itself, has seen a 10% rise in the average ticket size of gold loans at Rs 88,000. About 3.30 lakh accounts availed of gold loans, amounting to Rs 3,000 crore, in May.