The cooperative banks are targeting most of the gold loan processing to be done digitally:
Shantanoo Joshi, Vice Chairman, the Akola Urban Co-operative Bank; Alka Shrivastava, Chairperson, Lakshmibai Mahila Nagrik Sahakari Bank and Vasant Kulkarni Deputy CEO, Sharad Bank, provide insightful updates in the gold loan business of their respective banks.
Mehul Dani: What are the tenures of gold loans, what are product features in the gold loans of your bank in the current FY?
Shantanoo Joshi: We have 3 products under gold loan. The short-term loan is for a period of 1 year, wherein the repayment is permitted to be made as bullet payment i.e. the principle and interest for the whole year is payable on the due date.
The other product is for a tenure of 3 years, wherein the repayment is to be made in 36 EMIs. In this product, the repayment capacity of the borrower is to be considered.
Off late, we have introduced another product, wherein the borrower is sanctioned a limit to a running account. The borrower can operate his account within the limit sanctioned as per the valuation of the gold pledged by the borrower. This limit is reviewed every year and is renewed once in 3 years.
Alka Shrivastava: Tenure for gold loans of Lakshmibai Mahila Nagrik Sahakari Bank up to Rs1 lakh is 1 year and loans above Rs1 lakh are term loans. In this, the loan term and instalment will depend on the borrower’s income and ability to repay the loan. Loan is given up to 70% of the purity and valuation of gold. Gold loans are given by our bank at 9.5% interest.
Vasant Kulkarni: The maximum tenure for gold loan of Sharad Bank is 36 months. For loans up to Rs2 lakhs, loan period is 12 months with bullet payment and for loans above Rs2 lakhs period is 36 months but with EMIs.
What is the value and volume of gold loans of your bank in the last 3 FYs?
Shantanoo Joshi: The Akola UCB had 1079 gold loan accounts aggregating to Rs142 million as on 31 Dec 2020, which grew to 1237 aggregating to Rs155.4 mn as on 31 Dec 2021 and further to 1708 aggregating to Rs215.4 mn as on 31 Dec 2022. Thus, there is substantial growth in the portfolio.
Alka Shrivastava: Lakshmibai Mahila Nagrik Sahakari Bank, Gwalior is a mahila bank and it lends to women only. Most of the women to whom our bank gives gold loans, belong to the lower class. We are trying to give maximum gold loan because this loan is considered a secured loan. Due to this, the risk also remains less.
Vasant Kulkarni: Our gold finance range is between Rs190-200 million. There is no significant rise during 2022-23.
What are the trends during last FY, current FY and outlook in your bank’s gold loan business?
Shantanoo Joshi: If we consider the position as on 31st December 2020, 2021 and 2022, we can see a growth in the gold loan portfolio. The bank, with effect from October 2022, has given special focus on gold loan as there is ample scope for funding. The borrowers are borrowing mainly for their agricultural activities. Some borrowers request for the liquidity gap, which is bridged by the short-term loans. Off late, the business community is also noticed to be borrowing against gold.
Gold is considered to be valuable item and needs to be stored safely. The same is used for overcoming temporary liquidity problems. Thus, borrowers prefer safety and liquidity through gold loans. If the limits sanctioned are used meticulously, the interest amount can be saved. Thus, our bank launched a product specifically for business community to overcome their temporary liquidity crisis.
Alka Shrivastava: Since the gold loan is safe and does not have much formalities, this loan is safe for all those, who take the loan as well as for the bank which gives it. The interest rate on this loan is also low and according to the purity of the gold, the loan is easily available to the borrower. Therefore, the lower-class women, to do self-employment for the fulfilment of small needs, take this loan more. And also repays it in a fixed period.
Vasant Kulkarni: Gold business is not moving as per my expectation due to tough competition from NBFCs, credit societies, public prefers gold loans from them.
Please describe profile of borrowers and their needs.
Shantanoo Joshi: The branches of the Akola Urban Co-operative Bank, Akola are located in district places (C grade cities) and taluka places. The borrowers are more of agriculturists and salaried people. During the current year, the business class borrowers are added to the list. The age profile is between 35 to 55 years and the income is from agriculture, salary or business.
Alka Shrivastava: The economically lower-class women, to do self-employment for the fulfillment of their small needs, take this loan more. And also repays it in a fixed period. Mostly women within the age group of 35 to 60 years take loans.
Vasant Kulkarni: Our customers are mainly middle class, farmers dominated by male members with few exceptions. They are mostly adults between 40-50 years.
How are you making the loan process paperless and digital?
Shantanoo Joshi: The product is integrated under LOS System. Thus, the application, appraisal, assessment, sanction everything is through paperless banking process. Moreover, it is time saving and fast. The digital transfer of proposals saves time for the approval. The system also helps opening of borrowal accounts without any manual intervention.
Alka Shrivastava: Laxmibai Mahila Bank is using Core Banking Software of Pune based Jalgaon Infotech. Most of the work of the bank, including that of gold loans, is done only through software. Only the loan form has to be filled by the applicant.
Vasant Kulkarni: Still there is lot of paperwork involved for gold loan of Sharad Bank due to legal constraints. We are in the process of exploring other alternatives.
What is the outlook in your bank’s gold loan business for the next financial year?
Shantanoo Joshi: Gold loan business will see a 25% growth in the next financial year. During the last one year, the first 2 quarters were flat and there was absolutely no growth. Third quarter, we launched a special drive to cover gold loan borrowers. Thereafter, we are seeing good growth happening in the gold loan business. So, that is the business we see this year. The economic activity is picking up, so we are focused on gold loan, there is good business prospect.
Alka Shrivastava: Laxmibai Mahila Bank is trying to give maximum gold loan because this loan is considered a secured loan. Due to this the risk also remains less. Gold loan accounts don’t turn NPAs. As the borrower has her gold mortgaged, she has to worry about depositing the instalment on time. And the borrower in fact pays instalments on time.
Vasant Kulkarni: Day by day the gold loan portfolio is shrinking as DCC banks are giving interest-free loans to farmers.
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