State Bank of India, the country’s largest lender with an asset size of over Rs 25 lakh crore, is looking to grow its gold loan book to Rs 1 lakh crore in a year’s time.

The aggressive push in this loan segment is coming at a time when Covid-led stress in the economy is prompting many people to bridge cash shortfalls by monetising their gold ornaments.

A late entrant in the personal gold loan market with the launch dating to April 2020, SBI has been able to grow its portfolio exponentially to Rs 21,293 crore at the end of the fiscal first quarter ended 30 June 2021. Besides this, the state-run bank has Rs 50,000 crore of gold loans as part of its agriculture assets.

“The bank is targeting to grow the gold loan book to Rs 1 lakh crore within a year. With the loan-to-value (LTV) ratio at 25%, it is a safe product for the bank as we are protected from price fluctuations in case there is a sharp dip in prices,” SBI deputy managing director of retail Saloni Narayan told Indianbankingnews.com.

If the customer is opting for a bullet repayment, then the LTV ratio is 35%. A bullet repayment is one where the loan is repaid in one installment.

SBI reported a gross gold loan non-performing asset (NPA) of Rs 487 crore at the end of the June quarter. The NPA ratio in its gold loan book stood at 2.24%.

“A majority of the NPAs in the gold loan book is pulled back. During the fiscal first quarter, the mobility of both the staff and the customers were impacted. This resulted in delayed repayment of the loans,” Narayan said.

SBI recently reduced its gold loan rates by 0.75% for borrowers up to Rs 50 lakh, with the offer being until 30 September 2021. At 7.5% interest rate, it is the most competitive product in the industry. The bank has also waived off the foreclosure charges and the prepayment penalty on the gold loans.

ICICI Bank has an interest rate of 10% to 19.76% for gold loans between Rs 10,000 and Rs 1 crore while for Axis Bank it ranges between 12.50% and 17.50%. Non-banking financial companies (NBFCs) like Muthoot Finance charge between 12% and 27% on gold loans.

Any individual over 18 years of age with a steady source of income can avail the gold loan. Pensioners will require no proof of income to avail this loan, clarified Narayan.

India’s formal gold loan market is estimated to be growing at 30-40% annually, according to analysts tracking the sector.