The sharp growth seen in the gold loan portfolio of banks has started to moderate due to growing competition from gold loan companies and fintechs, and higher gold prices eroding individuals’ purchasing power to buy the yellow metal.
The year-on-year growth in loan against gold jewellery of banks has declined to 15% in February from 26% in June 2023, according to the Reserve Bank of India data.
“Due to the sharp rise in the prices over the last one year, individuals are now purchasing less gold. This means they have less quantity to pledge,” head of consumer banking of a private bank told FE.
“Banks are facing competition from gold loan companies and fintechs especially in semi-urban and rural areas,” he added.
Gold prices have seen a sharp rally in past one year mainly driven global factors such as expectation of a rate cut by the US Fed and increased buying by global central banks.
Bankers expect growth in gold loan to continue going forward as higher gold prices will allow them to get more loan. “More borrowers will turn towards gold since higher loan amount is available for disposal for roughly the same quality and quantity of gold,” said Kamal Sabhlok, head – secured and microfinance business, RBL Bank.
“More loans will be sanctioned for existing quantum of gold pledge due to the increase in eligibility amount on account of gold price increase,” he added.
Prices of yellow metal, which were at Rs 58,000 per 10 gram at the end of March 2023, have touched all-time high and are now hovering at around Rs 71,000 per 10 gram, reflecting a rise of nearly 22%.
“Banks were already facing stiff competition from gold loan companies. Now, fintechs have also started offering gold loans, which has intensified this competition even further,” said Madhavankutty G, Group chief economist, Manappuram Finance. “The sustained increase in the prices of gold over the past year has dented individuals’ capacity to buy gold,” he added.
Several fintechs have turned their focus on secured loans like gold loans after the RBI raised the risk weights on unsecured loans. Concerned with a sharp rise in personal loans, the RBI raised the risk weight requirement for banks and NBFCs by 25 basis points in November last year.
“The cost of capital for capital for fintechs has increased after the RBI increased risk weights. Earlier our main focus was on personal loans with ticket size of less than Rs 50,000,” said a senior official of a fintech firm. “In a bid to diversify our product portfolio, we have now started offering gold loan,” he added.
