Banks’ gold loan portfolios show signs of strain in June quarter

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Lenders reported the first signs of stress in their gold loan portfolios during the June quarter, as collections took a hit following restrictions put in place amid the second wave of infections in covid-19.

The asset quality of ICICI Bank, Federal Bank and Catholic Syrian Bank deteriorated due to the increase in non-performing gold lending (NPA) assets during the quarter.

ICICI Bank experienced more significant slippages than expected in ??7,200 crores, of which ??1,100 crore in gold loans only, as the lender delayed the recovery process, giving clients more time to repay given the pandemic.

“A significant portion of the gold loans will come back. These emergency loans slipped mostly in April and May due to foreclosure, and it’s more of a collection issue. June is better and July seems to be better than June, ”said Sandeep Batra, executive director of ICICI Bank.

The Federal Bank’s non-performing assets increased to ??640 crore in the June quarter from ??598 crore in the previous quarter. As the gold lending slippages amounted to ??50 crore, some retail accounts linked to borrowers of gold loans worth ??35 crore was also recognized as NPA. The bank restructured gold loans worth ??200 crores.

Kerala-based bank CSB ​​reported an increase in gold loan NPAs in the first quarter of fiscal 22, with the second wave of covid-19 affecting repayments. The bank has seen slippages worth ??435 crore in the quarter, of which ??337 crore came from gold loan accounts.

CSB, for example, changed its gold lending policy after observing an increase in NPAs in the gold lending portfolio after the Reserve Bank of India reverted to a 75% loan-to-value (LTV) ratio. against 90%. She also had to set up a gold loan collection team.

“The banks’ gold loan portfolio was negatively affected during 1QFY22 as the relaxation of the LTV limit given by RBI expired on March 31, which coincided with foreclosures in various states due to of the second wave of covid. A large part of the clients have not been able to meet the higher demand from banks to readjust the loan according to the lower revised LTV, as well as the regular EMI payment, ”said Ashutosh Misra, analyst at Ashika Stock Broking.

In the first half of 2021, the gold lending segment saw an increase in auctions, hinting at some stress among borrowers. Manappuram Finance announced that it has auctioned a record value of one tonne of pledged gold ??404 crore in the last quarter of 2020-21. The lender had to sell the gold at the lowest prices at the time, considering that it had fallen by more than 10% during the period.

However, lenders have said that the strain on the gold loan portfolio will persist for two more quarters as most of the loans made last year come due. Having said that, bankers are not worried as gold prices have started to rise and they expect to make the payments.

Demand for gold loans increased after the outbreak of the covid pandemic in 2020 as India’s economy suffered from job losses, wage cuts and emergency healthcare spending. People borrowed for their short-term needs or to ensure the continuation of business operations. According to RBI data, gold loans more than doubled to reach ??60,464 crore as of March 31, 2021 from ??26 192 crore a year earlier.

The State Bank of India saw its gold lending activity almost six times higher, with the lender’s loan portfolio amounting to ??20,987 crore as of March 31.

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