Banks report robust gold loan growth amidst regulatory tension

banks said that they do not see any tension on their gold loan business and fintech tie-ups

An analysis of at least three gold-loan-heavy banks showed that they have reported robust growth in their portfolios despite regulatory headwinds in the past few months. The regulatory hammer on IIFL Finance’s gold loan business affected some banks, which had tie-ups with the non-banking financial company (NBFC). In addition, some media reports showed that the Reserve Bank of India (RBI) has been cautioning gold loan lenders on their business with their fintech partners.

Amidst this, CSB Bank, which has a large chunk of its total book in gold loans, reported growth of 22 percent on a year-on-year (YoY) basis. The lender’s book grew to Rs 11,818 crore from Rs 9,694 crore last year.

South Indian Bank, too, is a major player, with its gold loan segment growing 12 percent YoY to Rs 15,513 crore. Federal Bank reported 27 percent growth, with its total gold loan book growing to Rs 25,226 crore from Rs 19,841 crore last year.

Partnerships

For its gold loan business, Federal Bank has tie-ups with companies such as Rupeek, Oropay, DGV, and New Street Tech. CSB Bank has a partnership with IIFL Finance for its gold loan business, while South Indian Bank has partnered with Rupeek. On this, banks said that they do not see any tension on their gold loan business and fintech tie-ups.

P Seshadri, managing director and chief executive officer (MD and CEO), South Indian Bank, said the bank would hope to have new tie-ups on its gold loan business as it sees no stress. “Most of our business comes from our branches but we would hope to have new tie-ups,” said Seshadri.

Regulatory anvil

Other than the regulatory hammer on fintech tie-ups, on March 4, the RBI had asked IIFL Finance to stop sanctioning or disbursing gold loans upon observing certain 'material supervisory concerns' in the company's gold loan portfolio. Its shares took a sharp knock the day after the regulatory action.

The RBI's inspection had revealed non-adherence to the standard auction process and lack of transparency in charges being levied to customer accounts. "These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers," the RBI said.

Post this, Moneycontrol reported that some lenders are reviewing their tie-up with the company but there is largely no building stress. “We are relooking at our business with IIFL Finance. We are aware of the developments and are waiting for any clarity,” a senior executive at one bank said, on condition of anonymity.

Another executive, who also declined to be named, said that the plan is to see how things pan out. “We are in a wait-and-watch approach,” the executive said.