Gold loans may recover in Q2: CSB Bank

After seeing a contraction in the gold loan portfolio during the first quarter of this financial year, Fairfaxbacked CSB Bank said it expects the segment to be back to normalcy by the second quarter.

The contraction in gold business was seen during the quarter after CSB Bank posted a record 61 per cent increase in gold loan in 2020-21.

In 2019-20 also, the company's gold-loan business saw an increase of 28 per cent compared to the previous year.

“First quarter has been a bit challenging for the gold loan portfolio and growth has been negative. As the economy is recovering fast from the second wave, I expect normalcy to be restored in the second quarter,” said CVR Rajendran, managing director (MD), and chief executive officer (CEO) of CSB Bank.

The gold loan portfolios of banks widened last year after the RBI allowed banks to offer 90% of the value of gold loans from 75%

The decline in gold loans was reportedly owing to subdued disbursements due to lockdowns announced by various states and shorter tenure of gold loans, which resulted in higher repayments.

The share of gold loans in the total mix comes to around 40 per cent.

“Other than gold, everything is in line. As far as gold loans are concerned, nonperforming assets (NPAS) is not a cause for worry as recovery is only a matter of time as we have adequate security coverage. This optimism is grounded on the past trends,” he said. CSB’S hope of recovery comes at a time when gold-loan-focused nonbanking financial companies (NBFCS) are staring at an NPA crisis from the September quarter.

The gold loan portfolios of banks widened last year after the Reserve Bank of India (RBI) allowed banks to offer 90 per cent of the value of gold loans (LTV) from 75 per cent. This was in effect from August 6, 2020. This was close on the heels of gold prices scaling record highs in the Indian market last year, following the global trend.