
Canara Bank, the largest gold loan provider among public sector banks (PSBs), remains confident in sustaining a higher double-digit loan growth in the gold loan segment, despite recent concerns regarding regulatory compliance. The Department of Financial Services (DFS) has requested data from PSBs, including Canara Bank, following issues at IIFL Finance and Bank of Baroda (BoB). However, Canara Bank has reassured that it has implemented robust compliance measures and will continue to grow its gold loan book.
As of December 31, 2023, Canara Bank’s gold loan portfolio amounted to Rs 1.45 trillion, marking a 20% year-on-year increase. Union Bank of India and Bank of Baroda reported gold loan portfolios of Rs 68,072 crore and Rs 45,074 crore, respectively. State Bank of India’s retail personal gold loan portfolio stood at Rs 30,881 crore. PSBs provide two types of gold loans: retail gold loans and agriculture loans backed by gold as collateral. Retail gold loans do not fall under the priority sector lending (PSL) category, while agriculture loans can be categorized under PSL.
Canara Bank has implemented stringent measures in the gold loan category. They conduct thorough peer branch reviews and require formal verification from an external gold loan appraiser before extending loans. The bank only funds loans when the gold has a purity level of 22 carats, and the average ticket size of their gold loans is above Rs 100,000.
Canara Bank emphasizes the importance of compliance and conducts quarterly reviews of their gold loan portfolio. They have not encountered any deviations in their reported numbers, even as per the Reserve Bank of India’s assessment.
The DFS has reached out to PSBs to ensure that they are maintaining appropriate loan-to-value ratios (LTV) for gold loans and to gather information about the frequency of reviews. As per RBI norms, lenders must maintain an LTV ratio of 75% for gold loans. Concerns about regulatory compliance have arisen following the RBI’s decision to halt IIFL Finance’s incremental gold loans due to breaches of norms, including deviations in assessing and certifying gold purity and weight, as well as LTV ratio breaches. IIFL Finance has taken steps to address these concerns and has submitted a compliance report to the regulator.