For banks, loan against gold is a glittering business as monetisation of the yellow metal is on a fast track in the country.
There is growing interest among banks and non-banking finance companies (NBFCs) to expand this business that has so far been a strong domain for the traditional players.
This monetisation process will open up the sector and enable the circulation of roughly 18,000 tonne (worth approximately Rs 30 lakh crore at current prices) back into the economy, said Ajay Mitra, managing director- India, Middle East & Turkey, World Gold Council.
?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 securitisation purposes, the role of gold is surely bound to change from a commodity to a monetised asset that would encourage consumers to invest more in gold, a time-tested secure and now a monetised asset class,? added Mitra.
The State Bank of India (SBI), Andhra Bank and HDFC Bank have already made their forays into the segment in a big way.
NBFCs like Mannapuram General Finance and Muthoot Finance are also aggressively expanding their base in this segment.
The total estimated market size of loans against gold is pegged at Rs 1,20,000 crore where the organised sector like banks and financial institutions have almost 50% of market share. The rest goes to 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, said: ?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.?
With the rate of interest between 12% and 15.25%, the interest rate varies along with the tenure of the loan and borrowers? relationship with the bank, added Pillai.
State-owned lender Andhra Bank, with just eight-month experience in the segment, has ambitious plans to bring all of its branches to disburse loans against gold within a couple of months.
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.?? Currently, 60 branches of the bank provide gold loans.
?We are planning to involve all the branches of the bank for the business by June.?? Andhra Bank normally provides 75% of value of gold pledged as loan and is planning to have one valuer per branch for the appraisal of gold while finalising loans.
The fee to be charged by the valuer is to be borne by customers themselves, added Prasad.
A senior official of Mannapuram General Finance, which has specialised in loan against gold, said on the condition of anonymity that the company has projected to achieve a business growth of Rs 4,500 crore under the segment as against Rs 2,550 crore in 2009-10.
?Thus, we are looking at a business growth of 50-100% under the segment during the current financial year,?? said the official.
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.