January 24th, 2012 
Ziaulla Namani
With credit demand has been declining because of high interest rates, banks have stepped up lending against the glittering yellow metal. Financing against gold being a secured form of lending, and higher margins are the key reasons why banks are expanding this portfolio.
Gold loans are deemed priority sector advances. This has also made the business lucrative for banks.
HDFC Bank had stepped into this business only three years ago. However, within this short span, it claims to have obtained momentous market share.
“We are well placed in terms of market share among new-age private banks. We have doubled our portfolio this financial year and expect the growth to accelerate, as more branches start offering this product,” a senior HDFC Bank executive said.
Jairam Sridharan, head of consumer lending and payments at Axis Bank, which has lately entered into this business, said, ”So far, we have been watching the market, assessing the risks and evaluating the business model. Most of these have been sorted out. We will start ramping up our business now, and would be more active in the gold loan market from the next financial year.”
George Alexander Muthoot, MD, Muthoot Finance , said “Gold loans up till now had been a monopoly of the South. But today, we have branches in north which have lent huge amounts of gold, even surpassing some of them in the south.”
The company’s assets under management were estimated at Rs 22,000 crore in November, compared to Rs 20,800 crore in September.
Manappuram Finance, another prominent player in this business, reported similar growth with AUMs of Rs 10,500 crore at the end of September, from Rs 9,000 in June.
Experts say the gold loan trend will grow as gold prices remain high. The demand for gold loans has led to a growing number of banks and NBFCs vying for a share of the pie
ICICI Bank too has seen significant growth in its gold loan portfolio. The bank, which currently offers up to 75% of the value of gold as loan, will very soon appraise the limit, an ICICI spokesperson said.
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