Following the State Bank of India, another large public sector, Canara Bank, crossed the Rs 1 trillion mark for outstanding gold lending book in June 2022. The Bengaluru-based lender is looking to expand its gold loan portfolio by more than 30% per year. year (YoY) of the current fiscal year ending March 2023 (FY23).
Out of a pound of one trillion rupees, the overwhelming share is from the agriculture segment (over 90,000 crore rupees) and the rest comes from two other segments – individuals and MSMEs. The Bank is making course corrections to its strategy to increase the share of individuals and micro and small enterprises (MSMEs).
Bhavendra Kumar, chief managing director of Canara Bank, said earlier that the bank is focusing on gold loans for agriculture – term loans as well as short-term credits. Now, the banks’ push will also include personal loans and MSMEs, he added.
When it comes to MSMEs, many clients come to apply for gold loans to bridge the working capital gap, Kumar said, adding that there will be huge demand in this segment for immediate cash needs.
In addition to growing business volumes, rising input costs are driving demand for working capital.
At Canara Bank, the maximum term for loans against gold collateral is two years. Interest rates vary between 7.4 and 7.65%.
The lender wants to increase the gold loan portfolio to a level of Rs 120,000 crore by the end of March 2023 with a personal loan share of Rs 5,000 crore and MSMEs of Rs 2,000 crore. This loan portfolio has seen a steady increase from Rs 54,000 crore in March 2020 to around Rs 77,000 crore in March 2021 and over Rs 92,000 crore in March 2022.
At present, much of the gold lending activity is concentrated in South India. Tamil Nadu and Kerala are big markets for gold loans where competition is also intense. Canara Bank is pushing this business in the Eastern region and two metropolitan areas – Mumbai and Pune.
In addition to working on 243 plazas (dedicated areas dug into branches), the bank will also provide gold loans through pending partnerships, Kumar said.