The exponential rate of growth for State Bank of India’s (SBI) gold loans is seriously denting its personal loan business, with many customers opting for the former because of interest rate arbitrage of almost 3%.
Gold-backed loans have hit Rs 3.10 lakh crore in quick time while Xpress Credit (the personal loan product of the bank), which was once the lender’s fast-growing segment, has fallen behind.
Among SBI’s loan verticals, auto and Xpress Credit are showing below double-digit growth over the last several quarters and the bank is working out a strategy to ensure their turnaround.
“Somewhere, this gold loan juggernaut will slow down, and some movement will happen to Xpress Credit. But we have an opportunistic growth in terms of gold loans, and we are doing it on a full basis — both on personal gold loan and agricultural gold loan. So, no worries on that,” Chairman CS Setty said in an interaction with analysts after the results.
While Xpress Credit has been expanding at the rate of 8.25% to reach Rs 3.75 lakh crore, personal gold loan is growing at a staggering rate of 97.54% to Rs 1.25 lakh crore. Another Rs 1.85 lakh crore came from agri gold loans, part of the bank’s agriculture portfolio, taking the total book to Rs 3.10 lakh crore.
“Xpress Credit customers see value in taking a gold loan due to the interest rate differential. About three-fourths of the incremental growth in the agriculture loan book of the bank is from gold loans,” Rama Mohan Amara, managing director (retail business & operations), told FE.
The bank is not keen on increasing the pricing on these loans. “The yields can generally go up only in lower ticket sizes. But we do not want our ticket sizes to come down,” Amara said.
“With a loan-to-value (LTV) ratio of 50-55% and pricing of 9%, it is a competitive product to have a good traction.” Amara added.
Setty said Xpress Credit is not going into double-digit territory because of gold loans. “Many of the normal express credit customers are opting for gold loans. Obviously, there’s an interest rate arbitrage of almost 3% between the products…” Setty said in an analyst call
The bank has witnessed growth in gold loans from traditional markets like the South, but the rest of India is also contributing, with states like Uttar Pradesh showing reasonable traction.