Private sector lender CSB Bank, which has 44 per cent share of gold advances in its overall loan book of ₹26,871 crore as on September end, is compliant with the regulatory norms on extending gold loans, but will further strengthen its audit and documentation processes after the Reserve Bank of India (RBI) in September flagged irregular practises being adopted by certain lenders in extending gold loans, MD & CEO Pralay Mondal told businessline.

“Broadly, when the circular was issued, we analysed it but most of it did not come as a surprise to us because gold being a very important portfolio to us, we were constantly in touch with the RBI, we corrected most of these things in last 12-15 months,” he said.

As gold loan disbursement is a decentralised process, the lender needs to ensure that its policies are being executed at the ground level. “...So we have to further strengthen our audit and documentation process. That is the only thing we should do further which is more of an execution (of existing policies),” he said.

The RBI had flagged that in certain lenders’ case, where gold loans were being granted through partnership with fintechs or business correspondents (BC), practices such as--valuation of gold being carried out in the absence of customer, credit appraisal and valuation done by the BC itself, gold being stored in the custody of BC--were observed. Certain gold loan lenders were also doing KYC via fintechs, and were found using internal accounts for disbursement as well as well as repayment of loans.

Mondal said the lender does not partner with any fintech or BC on gold loans for sourcing, appraisal, KYC or other valuation process. The entire gold loan sanction and disbursement process happens via the bank’s branches.

Diversifying loan book

Mondal said the bank is actively pursuing its path towards diversification from gold loans, but as a major technology transformation is currently underway, higher growth in other retail assets will only occur from FY27 onwards.

“We want to have 20per cent gold loans, 20per cent SME, 30per cent wholesale and 30per cent retail by FY30. But nothing much will change on gold loan share till next 18 months. We will be between 40-45per cent. Our entire growth in retail will happen from FY27-FY30 when our systems will be in place. We are going through major tech transformation,” he said.

As on September end, 20 per cent of the bank’s loan book is towards retail segment, 13 per cent in small and medium enterprises (SME), 23 per cent corporate loans, and 44 per cent gold loans. Wholesale loan growth, which has been flattish in H1FY25, will rise slightly in H2FY25, and grow faster in next fiscal.

Overall, the bank expects its advances and deposits to rise at least 30-50 per cent faster than the banking system going ahead, and aims to maintain credit-deposit ratio of well below 90 per cent in current fiscal. It expects net interest margin to be stable at Q2 level of 4.30 per cent, the MD said.

“We have to be little conservative on CD ratio due to our smaller balance sheet. We cannot take liquidity risk like that of a large bank as small wave can create problems. So to that extent, in a risky cycle like this on liquidity side, we will always be safe than sorry later. From that perspective, I will keep a CD ratio which is well below 90 per cent.”

Unsecured credit

Mondal said the bank in the last one year started going slow on growing unsecured loans including personal loans, micro loans and two-wheelers. Most mid-sized private banks saw a rise in unsecured loan delinquencies in Q2FY25. “In H1FY25, only businesses that we have de-grown primarily is personal loan, MFI, and two-wheelers. We have marginally de-grown wholesale but that is for a very different strategic reason,” he said.

“Unless you see growth of certain segments coming in single digit, you cannot even think about peaking of cycle (of stress in micro loan segment),” he added.

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