Private sector lender IndusInd Bank is likely to foray into the gold loans business in this quarter, the bank chief Romesh Sobti said.
The bank is likely to set a conservative loan-to-value (LTV) ratio of 50-65 per cent depending on the client profile.
LTV is the amount of loan a borrower gets against the value of the collateral. So, in the case of IndusInd Bank, if a customer pledges gold amounting to Rs 10,000, he will get a loan of Rs 5,000-6,500.
According to Sobti, the industry has learnt its lessons with regard to the LTV ratio.
“These gold loans can be for any end use — either consumption or productive. The demand for gold loans is good and the default rate is very low. Regulatory issues are also very clear now,” said Sobti on the sidelines of his bank’s financial results conference.
The mid-size bank has hired Padmanabhan R., who was earlier with HDFC Bank, to take charge of the gold-loan segment.
According to Sumant Kathpalia, Head- Consumer Banking, said, “To begin with, the growth in yields won’t be very high and would range around 14-17 per cent.” In the Indian context, gold loan is a critical product for many borrowers. It has emerged as a great way to raise short-term capital in an expeditious manner, said Sobti.
With less than 2 per cent of the country’s gold holdings being used as collateral for getting loans, “any gold loan product has huge potential,” he said.
“We are not targeting the bottom of the pyramid. Our aim is to focus on the metros for now and largely we will be looking at self-employed people as customers. Also, we are not necessarily looking at high growth, but at the right clients,” Kathpalia said.
India is one of the largest markets for gold, accounting for about 10 per cent of the total global gold stockpile.
The bank will launch the loan against gold product at select branches as it involves high operational costs due to the high value of the asset involved in the segment.
Despite the presence of established non-banking players such as Mannapuram Finance and Muthoot Finance, the bank feels there is enough space for other financial intermediaries to enter this segment.