Gold loan inching towards 50% of the bank’s gross advances
CL Jose
KOCHI: Gold loan is obviously a safe asset and more meaningfully, this asset class doesn’t exert pressure on capital for a bank, which indisputably makes it an attractive business.
But are banks ideally expected to earn their staple from their gold loan portfolio, or to put it further straight, does it sound good for a bank to derive its core business from gold loans?
CSB Bank, the Thrissur based centenarian bank, is literally running like a gold loan company with its gold loan portfolio inching towards 50 per cent of the bank’s gross advances as of March 31, 2024. “This not only helps the bank in indulging in a relatively safe business, more importantly, the bank may not require additional capital in the immediate future to back its business growth.
The trend is not confined to CSB Bank alone as the other Kerala based banks such as Federal Bank, South Indian Bank (SIB), as well as Kerala Bank, which is majority owned by the primary agricultural cooperative societies (PACS), are also actively growing their gold loan business, of late.
The latest figures released by CSB Bank, where FIH Mauritius Investments Ltd (FIHM) holds 49.72 stake, the Bank’s gold loans account for more than 48 per cent of the bank’s advances. While the total advances were at Rs24,574 crore, gold loans alone are valued at Rs11,817 crore as of March 31, 2024.
In fact, ever since the turnaround exercise for the bank was embarked on under the new management, gold loan has been growing much faster than anything else in the bank’s books, which is evident this time too.
While gold loans clocked a growth of 22 per cent year on year (YoY), the growth logged by the total advances was much lower at 18 per cent.
According to VP Nandakumar, the MD & CEO of Manappuram Finance, the second largest gold loan company in the state, the large chunk of gold loan business still remains with unincorporated bodies. “We don’t have exact data, but the general impression is that they (unorganised sector) do more than two-thirds of the total business,” he added.
This shows that the really enthusiastic players in the gold loan business stand to gain huge market share going forward, as the unauthorized businesses are bound to arrive at established institutions such as banks, sooner than later.
Having said that, CSB Bank seems to be clearing the decks for a smart growth with its total deposits growing at a rate of 21.27 per cent over the past one year to Rs29,719 crore as of March end.
FIHM may bring in large deposits
One thing that worries the bank could be the slow growth in its low-cost current and savings accounts (CASA), which has only marked a growth of just 2.51 per cent against a 30 odd per cent growth in its term loan book.
The shareholders of the bank recently gave approval to the bank to accept deposits in current account or any other similar /other types of accounts up to an amount of Rs5000 crore, from FIHM and FIH Pvt Investments Ltd, another company from the promoter group.
The shareholders have also given their go-ahead to the bank to undertake foreign exchange transactions including International cross border transactions for FIHM group up to an amount of Rs5000 crore.
