SBI eyes three-fold rise in retail, MSME gold loan business in FY21

Country’s largest lender State Bank of India is getting aggressive in retail and MSME gold business and plans over three-fold growth in this portfolio to Rs 20,000 crore by March 2021.

It will use digital banking platform YONO extensively to cut-down on response time and scale up activity for it.

Banks including SBI have an edge over gold loan companies due to lower lending rates. But they often lose out on turnaround time – take longer to give loans, while likes of Muthoot and Manappuram act quickly.

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C S Setty, Managing Director (retail and digital banking) SBI, said, “Bank loans are cheaper by 200-300 basis points (compared to gold loan companies). And with using digital lending platform, turnaround time now is 30 minutes as against two hours earlier. The lending rate for personal gold loan is 7.5 per cent. For SME gold loan – 7.65 per cent and for agriculture gold credit on YONO.”

The pandemic (Covid-19) has changed the preference of our customers. It is a big opportunity as there is now more acceptability to adopt digital channels for doing banking transactions. The bank will scale up YONO and further strengthen the platform through new product offerings like personal gold loans, according to SBI’s annual report for 2019-20.

Bank is already processing 4,400 applications for personal gold loans on YONO platform plus manual operations each day.

Besides personal loans, SBI has begun gold loans for SMEs on YONO platform. It has given loans to 3,400 borrowers. The gold loan portfolio – retail and SME – is about Rs 6,000 crore now, which banks expect to ramp up to Rs 20,000 crore by March 2021, Setty said.

Also about 15,000 applications for agricultural gold loans are being dealt on YONO platform.

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Agri-loan portfolio is about Rs 57,000 crore. These are short term loans for three-six months’ tenure. So the outstanding loan book in agriculture gold credit does not show sharp rise. The volume of loans a month is important indicator for farm gold advances, Setti added.

With gold prices ruling at dizzy heights, lenders are exposed to price volatility risk. So for a prompt decision making, SBI has put in system dynamic monitoring of gold prices (daily basis).

Recently, Reserve Bank of India raised the cap on loan to value ratio (LTV) to 90 per cent from 75 per cent for gold loans by banks. However, SBI will give loan with 90 per cent LTV in select cases only. The loan to value in most loans falls between 62-65 per cent of value of gold, he added.

In India due to the emotional value associated with gold jewllery, people rarely sell their ornaments to meet their immediate financial needs.

As an alternative, people pledge their gold jewellery as collateral and secure short term loan.