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A sudden fall in household income in the wake of the second wave of the pandemic has led to higher delinquencies in the gold loans given by the private banks. The leading private banks, which reported the first quarter earnings – such as ICICI Bank, HDFC Bank, Federal Bank and CSB Bank — have reported higher stress in their retail loans, especially in the gold loan portfolio.

This is despite most banks reporting healthy profits in the first quarter of 2021-22.

Gold loan slippages

Many banks did not want to push their retail customers – who have mortgaged their gold jewelleries to raise some quick funding — to service the debt beyond a point. “Given the extended lockdowns in certain geographies and the challenges clients were facing, we did not want to push customers to make the payments. So, if they could not, they were either restructured or became NPA,” said Shyam Srinivasan, MD & CEO, Federal Bank.

The bank’s gold loan slippages stood at Rs 50 crore, around 0.3% of the portfolio, for the quarter ended June. It also restructured gold loans worth Rs 200 crore in the quarter.

ICICI Bank saw a slippage of Rs 7,200 crore in the first quarter, with the retail segment accounting for Rs 6,700 crore. “Out of these, Rs 1,130 crore came from jewellery loans,” according to Sandeep Batra, executive director. He said jewellery loans are fully secured.

However, gold being a safe collateral, banks are not overtly worried about the slippages.

CSB Bank, which counts gold loans as an important portfolio, saw an increase in stress in gold loans too. Of the overall slippages at Rs 423 crore during the first quarter, gold loans stood at Rs 337 crore.

The bank had reportedly tweaked its gold loan policy after observing a surge in bad debt in the gold loan book after the central bank reverted to a loan-to-value (LTV) ratio of 75% from 90%. A senior bank official said they did not want to pressurise customers in the wake of the pandemic, despite its collections dropping to 20%.

Positive growth in gold loans

As per the Reserve Bank of India (RBI)’s July bulletin, loans against gold jewellery had reported a positive growth in the first two months of 2021-22 even as the personal loan outstanding of banks reported a minor drop. Gold jewellery loans reported a 2.3% growth to Rs 62,101 crore as on May 21, as per the RBI data.

Higher gold prices had helped people raise funds by mortgaging their jewelleries as lockdowns in the second wave rendered many jobless.

Surprisingly, credit card outstanding had dropped nearly 10.4% in the first two months of the current financial year to Rs 1,04,475 crore as on May 21. Other personal loans, which form an important part of the personal loan portfolio for banks, also reported a fall in growth at 1.6% to Rs 7,77,567 crore. Similarly, advances against fixed loans too slipped 7% to Rs 66,510 crore.

The banks have become cautious about high-priced pure-play personal loans as delinquencies rose in the past few months.