CSB Bank seems to be going the whole hog on gold loans, going by its latest business update. The bank reported a 60.36 per cent year-on-year (yoy) jump in these loans in the third quarter of FY2021.
‘Advances against Gold & Gold Jewellery’ alone accounted for about 42 per cent of its gross advances as at December-end 2020, against 31 per cent as at December-end 2019.
In absolute terms, Advances against Gold & Gold Jewellery stood at ₹5,633.75 crore (provisional) as at December-end 2020 against ₹3,513.25 crore as at December-end 2019, as per the Thrissur (Kerala) headquartered bank’s regulatory filing.
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Overall, CSB Bank’s gross advances increased by 22.64 per cent yoy to ₹13,425.24 crore as at December-end 2020 from ₹10,947.28 crore as at December-end 2019.
Tailwinds from relaxed LTV
This expansion in the Advances against Gold & Gold Jewellery comes in the backdrop of the Reserve Bank of India (RBI) increasing the permissible loan to value (LTV) ratio for loans against pledge of gold ornaments and jewellery for non-agricultural purposes to 90 per cent on August 6, 2020 from 75 per cent earlier.
The enhanced LTV ratio (the amount of loan a borrower can get against the appraised value of his collateral) is applicable up to March 31, 2021 to enable the borrowers to tide over their temporary liquidity mismatches on account of Covid-19.
In CSB Bank’s second quarter earnings conference call, CVR Rajendran, MD & CEO, observed that gold loans had grown by ₹1,100 crore, up 30 per cent quarter-on-quarter, capitalising on the tailwinds provided by RBI’s relaxation in LTV norms.
“Retail is driven mainly by the gold loan growth. There’s been a growth of 47 per cent in gold loans. But another bank, which is much larger, has grown by 54 per cent.
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“So there is much scope for improvement in gold loan itself, going forward, and we will continue to lend,” the CSB Bank chief said.
Rajendran then emphasised that gold loan is safer and the bank is tightening its systems, underwriting standards, and inspection, among others, to ensure that losses are kept to the minimum.
“We still have an average LTV of 71 per cent. Risk rateable value of the portfolio is only ₹184 crore. It is a portion above the 78 per cent LTV worked out individually,” he said in the earnings call.
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