Canara Bank remains bullish on gold loans

Even as the Department of Financial Services (DFS) has written to all public sector banks (PSB) asking them to review gold loan portfolios for any lack of regulatory compliance, Canara Bank, the largest gold loan provider amid PSBs, is confident of sustaining a higher double-digit loan growth in the segment, two senior officials told FE.

“The DFS sought some data from us and other PSBs about a week back and we have submitted it already. This was an outcome of the issues at IIFL Finance and Bank of Baroda (BoB). However, we will continue to grow our gold loan book as we have implemented robust compliance measures,” a source said.

Canara Bank’s gold loan portfolio stood at Rs 1.45 trillion as on December 31, 2023, up 20% year-on-year (YoY). The same for Union Bank of India and Bank of Baroda stood at Rs 68,072 crore and Rs 45,074 crore, respectively. State Bank of India’s retail personal gold loan portfolio was at Rs 30,881 crore.

Banks extend two set of gold loans – retail gold loans and agriculture loans backed by gold as collateral. According to experts, the former does not come under the priority sector lending (PSL) category while the latter can be marked under it.

Canara Bank has put in place strong measures in the gold loan category. According to sources, from the quarter ended April, it has been extending loans only after conducting a thorough peer branch review and after receiving a formal verification from an external gold loan appraiser. The bank’s average ticket size of gold loan is above Rs 100,000 and the lender only funds loans when the gold has the purity level of 22 carats.

“We are the biggest gold loan lender in India and cannot take any chance with regard to the compliance process. We follow strict compliance and conduct a strict review of the gold loan portfolio on a quarterly basis. Even the Reserve Bank of India has not found any deviation in our reported numbers,” a source said.

The DFS, bankers say, has written to PSBs asking them to ascertain whether they are assigning a proper loan-to-value ratio (LTV) on gold loans and also sought details about the frequency of reviews. The RBI’s norms say lenders must maintain an LTV ratio of 75% for extending gold loans.

Concerns over any potential lack of regulatory compliances have come into the fore in the aftermath of the RBI stopping shadow lender IIFL Finance from offering incremental gold loans due to breach of norms, including “serious” deviations in assaying and certifying purity and net weight of the gold at the time of sanctioning as well as auction upon default.

There were also breaches in LTV ratio. IIFL sources recently told FE that the lender has already taken measures and has submitted the compliance report with the regulator.