Gold Loans On The Rise As Banks Reorient Toward Secured Financing

Banks have witnessed a rapid increase in their exposure to unsecured loans, a development that has raised concerns previously articulated by the Reserve Bank of India (RBI). In response to the RBI's apprehension about the expansion of unsecured loan portfolios, certain banks are quickly redirecting their focus towards promoting secured lending, with gold loans emerging as an appealing financial product within the retail sector.

Many banks are considering launching their gold loan products and forming partnerships with fintech firms like Indiagold and Rupeek, according to sources cited by the Economic Times. Even major banks like HDFC Bank and Axis Bank, which previously had limited involvement in this sector, have recently shifted their focus in response to this trend.

“HDFC Bank is enabling more than 200-300 branches every quarter with the capability to sell gold loans. Over the last few quarters, they have been pushing gold loans majorly,” a senior banker told ET.

For banks, gold loans present an effective approach to attracting retail customers and establishing enduring relationships, as they tend to foster customer loyalty. Earlier assessing the purity of gold, mitigating fraud, and targeting the appropriate customer base have posed challenges. However, the integration of technology and strategic partnerships is increasingly transforming gold loans into a mainstream financial product.

According to Deepak Abbot, a co-founder of the digital gold startup Indiagold, unsecured lending has significantly expanded among banks in the past 18 months. This growth is compelling them to explore secured financial products such as gold loans and mortgages.

Commonly, Federal Bank and CSB Bank, both based in Kerala, have been recognized as prominent gold lenders, alongside well-established NBFCs like Muthoot Fincorp, Muthoot Finance, and Manappuram Finance. However, emerging players like Rupeek have successfully entered the market by offering doorstep gold loan services, thus securing their place in the industry.

While Rupeek initially provided loans from its own capital, it's worth noting that at present, over 85 per cent of the assets under its management are procured through collaborative arrangements with partner lenders. Rupeek has established partnerships with Federal Bank, Indian Bank, and South Indian Bank, and is actively engaged in discussions with several other potential lenders.