Amidst regulatory stress, banks report significant increase in gold loans

Amidst regulatory stress, banks report significant increase in gold loans

The central bank has sent warnings to gold-loan lenders against doing business with their fintech partners during the last several months.

Banks said that there is no conflict between their fintech partnerships and their gold lending operations.

Despite recent regulatory challenges, an examination of a minimum of three banks that have a significant gold loan portfolio shown that they have had strong portfolio growth. Some banks that had relationships with the non-banking financial corporation (NBFC) were impacted by the regulatory hammer placed on IIFL Finance's gold lending operation. Furthermore, according to some media sources, the Reserve Bank of India (RBI) has been warning lenders of gold loans about their dealings with fintech partners.

Amidst this, CSB Bank claimed growth of 22% year over year (YoY), with a significant portion of its overall book in gold loans. From Rs 9,694 crore to Rs 11,818 crore last year, the lender's book increased.

Another significant participant is South Indian Bank, whose gold loan business increased by 12% year over year to Rs 15,513 crore. With its overall gold loan book increasing to Rs 25,226 crore from Rs 19,841 crore the previous year, Federal Bank claimed a 27 percent gain.

Collaborations

Federal Bank has partnerships with Rupeek, Oropay, DGV, and New Street Tech for its gold lending business. For its gold lending operations, CSB Bank has a collaboration with IIFL Finance, whilst South Indian Bank has a cooperation with Rupeek. Regarding this, banks said that they perceive no conflict between their fintech partnerships and their gold lending operations.

The managing director and chief executive officer (MD and CEO) of South Indian Bank, P Seshadri, said that the bank does not anticipate any hardship in its gold lending business and would want to establish new partnerships. "Our branches generate the majority of our business, but we would like to establish new partnerships," Seshadri said.

Anvil regulations

In addition to applying regulatory pressure on fintech partnerships, the RBI requested on March 4 that IIFL Finance cease authorizing and paying out gold loans after identifying some "material supervisory concerns" in the company's portfolio of gold loans. The day following the regulatory action, its shares saw a severe decline.

The regular auction procedure was not followed, and the charges being applied to client accounts were opaque, according to the RBI's assessment. "These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers," the RBI stated.

Following this, Moneycontrol said that although there isn't much growing tension, some lenders are evaluating their relationship with the firm. "We are reviewing our business in conjunction with IIFL Finance. A top executive at one bank said, "We are aware of the developments and are waiting for any clarity," under the condition of remaining anonymous.

An other official, who wished to remain anonymous, said that the strategy is to observe the course of events. "We are currently taking a wait-and-watch stance," the executive said.