CSB Bank could be largest ‘gold loan player’ in state now
KOCHI: Gone are the days when the country’s leading gold loan companies such as Muthoot Finance and Manappuram Finance, the former being country’s largest gold loan player, dominated Kerala’s gold loan market.
The banks that once looked down on gold loan business as cumbersome, lacking in prestige and one that doesn’t warrant expertise of a bank are now all game for it and seem to be gradually embracing the business for its sheer lucrativeness and the low-risk nature of the business.
More so because the banks that struggle to maintain the Basel prescribed capital are very well cognisant of the fact that the gold loans are relatively far less capital demanding too, thanks to the low risk weight this asset class carries – at 50 per cent of a normal retail loan.
And this allows the banks to unlock the pricey capital.
How many would know that CSB Bank could be ‘the largest player’ in the state’s gold loan market. CSB Bank’s latest investment presentation shows that gold loans account for 32 per cent of its aggregate advances, and Kerala accounts for 44 per cent of the bank’s gold loan portfolio.
A rough calculation shows that out of CSB’s total advances at Rs10,808 crore as of December end, 2019, more than Rs1500 crore represented its gold loans in Kerala alone, thus giving Muthoot and Manappuram a run for their money.
It was VP Nandakumar, MD and CEO of Manappuram Finance, who said while addressing analysts recently that his company’s gold loan portfolio in Kerala is just around Rs500 crore compared with its total gold loan AUM of Rs16,000 crore.
Muthoot officials have time and again pointed out that Kerala is not a hot market for the company as it used to be once. The gold loan business in Kerala contributes only about three per cent to the top line of Muthoot Finance’s gold loan business – which could be just about Rs1200 crore.
The mounting bad loans have been an eye opener for the banks. It won’t take much brain to comprehend the fact that if dealt with carefully, gold loan business would never allow bad loans to seep into their books by virtue of the level of security it enjoys.
Paradoxically, despite the risk free nature of the business, gold loan is an asset class that offers far better yields than any other loans. Muthoot and Manappuram generate yields at above 20 per cent on gold loans.
The narrative of the gold loan business may not be complete without mentioning the fund sources of these gold loan companies.
Almost half of the borrowings of the state’s storied gold companies have come from the banks though there has been a drop in the trend after these companies have sourced borrowings from overseas markets in the past couple of months.
But the scene is fast changing. Not only CSB Bank, other banks are also getting active in the gold loan business space, of late. Federal Bank, the largest Kerala bank, is on an advertisement campaign to promote gold loans at rates as low as close to 9 per cent.
Federal has already partnered with a young Fintech company to distribute gold loans at the customers’ residences. Gold loan book for the bank has grown by 27 per cent, year-on-year, as of December end.
In the case of South Indian Bank, against a total retail portfolio of Rs19,834 crore about 13 per cent or Rs2544 crore is just gold loans. With more than 50 per cent of SIB’s business being in Kerala, the bank’s gold loan portfolio in the state could be anywhere near Rs1000 crore currently, and still counting.