PremiumLenders reported early signs of stress in their gold loan portfolios in the June quarter, as collections took a hit following the restrictions put in place amid the second wave of covid-19 infections.
The asset quality of ICICI Bank, Federal Bank and Catholic Syrian Bank deteriorated on account of rising gold loan non-performing assets (NPAs) during the quarter.
ICICI Bank witnessed higher-than-expected slippages at ₹7,200 crore, including ₹1,100 crore from gold loans alone, as the lender delayed the recovery process, giving more time to clients to repay in view of the pandemic.
“A significant part of the gold loans will come back. These loans slipped mostly in April and May because of the lockdown, and it is more of a collection issue. June is better, and July seems to be better than June," said Sandeep Batra, executive director, ICICI Bank.
Federal Bank’s non-performing assets rose to ₹640 crore in the June quarter from ₹598 crore in the preceding quarter. While gold loan slippages stood at ₹50 crore, some retail accounts linked to gold loan borrowers worth ₹35 crore were also recognized as NPAs. The bank has restructured gold loans worth ₹200 crore.
Kerala-based CSB Bank reported a rise in gold loan NPAs in the first quarter of FY22 as the second wave of covid-19 affected repayments. The bank saw slippages worth ₹435 crore in the quarter, of which ₹337 crore were from gold loan accounts.
CSB, for instance, tweaked its gold loan policy after observing a surge in NPAs in the gold loan book after the Reserve Bank of India reverted to a loan-to-value (LTV) ratio of 75% from 90%. It also had to put in place a recovery team for gold loans.
“Gold loan portfolio of the banks got adversely impacted during the 1QFY22 as the relaxation on the LTV limit given by RBI lapsed on 31 March, which coincided with the lockdown in different states due to the second wave of covid. A large part of customers was not able to meet the higher demand from the banks to readjust the loan as per downward revised LTV, as well as the regular EMI payment," said Ashutosh Misra, an analyst at Ashika Stock Broking.
In the first half of 2021, the gold loan segment saw a surge in auctions, hinting at some stress among borrowers. Manappuram Finance said it had auctioned a record 1 tonne pawned gold worth ₹404 crore in the last quarter of 2020-21. The lender had to auction gold at the lowest prices back then, considering that it had fallen by more than 10% during the period.
However, lenders said the stress in the gold loan portfolio will remain for another two quarters, as much of the loans given last year will come up for maturity. That said, bankers are not worried as gold prices have started inching up, and they expect to realize the payments.
Demand for gold loans spiked after the outbreak of the covid pandemic in 2020 as the Indian economy suffered due to job losses, salary cuts and emergency health expenses. People borrowed for their short-term needs or to ensure the continuation of business operations. According to RBI data, gold loans had more than doubled to ₹60,464 crore as of 31 March 2021 from ₹26,192 crore a year earlier.
State Bank of India saw a nearly sixfold rise in its gold loans business, with the lender’s loan book standing at ₹20,987 crore as of 31 March.
