According to CSB Bank MD, gold loans would represent 30% of total advances by FY30.

According to CSB Bank MD, gold loans would represent 30% of total advances by FY30.

According to the bank’s MD & CEO, Pralay Mondal, Thrissur-based CSB Bank wants to reduce the proportion of gold loans in its entire advances portfolio from 46% at the end of June to 30% by FY30.

The MD stated, “Our gold loan segment will continue to have a large share until FY25, after which other businesses will start to take off and gold business will start to taper off.”

According to the MD, by 2030, gold loans will account for 30% of total advances, while retail loans will account for 30%, small and medium-sized businesses (SMEs) will account for 20%, and wholesale and securitization portfolios will account for 20% of total advances.

The net advances held by CSB Bank as of June 30 were Rs 21,103.55 crore, up 31% from the same period last year. Gold loans made up 46% of all advances, followed by corporate loans (28%), retail loans (14%), and small and medium-sized business loans (12%). The bank plans to introduce other loan products, including loans against property, house loans, commercial vehicles and equipment, and loans for autos, according to the MD.

In terms of liabilities, the bank wants to maintain the rate of deposit growth from Q1FY24. The private lender’s deposits increased 21% yearly to Rs 24,475.5 crore as of June 30. While deposits increased by double digits, the proportion of low-cost current and savings accounts (CASA) decreased from 35.14% on June 30, 2015, to 30.84% as of June 30.

“CASA growth is not that simple until you have a comprehensive service and product franchise, thus I have advised that we will stay between 30% and 32.We’ll finally get to 40% by FY30,” the MD predicted.

The MD said that the bank is “quite comfortable” with the present levels and that the increased CD ratio across the industry results from quicker credit growth when asked how the bank planned to address the credit-deposit (CD) ratio approaching approximately 90%.

“We feel safe with a CD ratio of 85% to 90%…Many banks’ CD ratios have increased throughout this cycle, and ultimately, when liquidity persists for a while, and the system’s deposit growth begins to speed up, the CD ratio will likewise begin progressively declining, according to the MD.

The MD concluded by stating that because of deposit repricing, he anticipates a net interest margin (NIM) reduction in Q2FY24. “The deposit repricing will play out over the upcoming quarter and then level out. The MD stated, “I think we have one more quarter to monitor for NIM, and from Q3 onward, it will be business as usual…and stable at that level. The net profit for the June quarter, which concluded on Thursday, increased by 15% year over year to Rs 132.2 crore.

CSB Bank, a prominent banking institution in India, recently announced a significant forecast for its gold loan portfolio. The bank’s Managing Director (MD) stated that gold loans could constitute approximately 30% of the bank’s overall advances by the end of the Financial Year (FY) 2030. This optimistic prediction comes amidst a changing financial climate and the rising popularity of gold as a safe and reliable loan avenue.

Gold loans, a type of secured loan, are granted against gold. The gold is returned to the borrower once the loan is repaid. As gold has traditionally held its value well, gold loans provide an attractive means for individuals to acquire funds without selling their precious metal assets.

Gold loans have been rising in popularity, primarily due to their quick disbursement, lack of extensive documentation, and lower interest rates compared to unsecured loans. Furthermore, gold loans also provide a way for individuals needing a more substantial credit history to secure the necessary funds. For these reasons, they are widely preferred in rural and semi-urban areas of India, where gold is often seen as a safe investment and is readily available.

According to the MD of CSB Bank, the bank has set a strategic goal to considerably increase the proportion of gold loans in its portfolio by FY30. This strategy is born out of recognition of the country’s growing potential and demand for gold loans.

CSB Bank plans to bolster its gold loan portfolio through multiple avenues as a part of this strategy. This includes streamlining loan processing, leveraging technology to improve customer experience, and establishing more branches in areas with high demand for gold loans. The bank also plans to aggressively market its gold loan offerings, emphasizing its competitive interest rates and the safety and security it provides for customers’ gold assets.

The bank’s ambitious goal, which is to increase gold loan advances to 30% of its total advances by FY30, has several implications. Firstly, this strategy will likely increase the bank’s risk diversification as gold prices have historically been relatively stable. Secondly, it could significantly boost the bank’s profitability as gold loans typically have lower default rates due to their secured nature.

While CSB Bank’s strategy is well-thought-out, it has risks and challenges. The primary risk is the volatility of gold prices. A sharp decline in gold prices could result in the value of the collateral dropping significantly, increasing the risk of loan defaults.

CSB Bank’s gold loan strategy reflects the changing dynamics of India’s financial sector. With increasing numbers of individuals seeking secure and quick means of getting loans, gold loans have come into the spotlight. CSB Bank’s prediction of gold loans forming 30% of overall advances by FY30 demonstrates the growing significance of this financial product in the bank’s portfolio and the Indian banking sector at large. This trend is worth watching closely, especially for investors and customers.