Kotak Mahindra Bank (KMB) is gradually launching gold loans at its branches in view of healthy demand, a senior official said. Nonetheless, growing a gold and jewelery loan (LAGJ) portfolio is like running on a treadmill as these loans are repaid within a year.
According to the latest data from the Reserve Bank of India, the bank’s LAGJ portfolio grew strongly by 22.1% year-on-year to Rs 96,265 crore as on August 25, 2023, compared with Rs 88,428 crore as on August 26, 2022.
“So, we started as a small business. Last year, we added almost 150 gold loan branches… We are slowly activating our gold loan branches. This is a product that will take time to build because of the infrastructure It has to be ready,” said Manish Kothari, President and Business Head, Commercial Banking, KMB.
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He emphasized that the gold loan business is very intensive in terms of infrastructure and operations, requiring branches to be prepared to handle customers who come in with all gold jewelry, and must go to the branch to evaluate the value of the gold jewelry and take safekeeping measures.
“That’s what we are putting in place as we build. I think we (the portfolio) will grow at 30-40 per cent… The gold loan business is a treadmill type of business because it is a business that people are very interested in. Loans that can be settled quickly.
“Not many people are keeping their loans for more than 7-8 months. So you are constantly running on a treadmill in terms of continuing to replenish your books and attract new customers,” Kothari said.
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He pointed out that this is a loan that people are more willing to take in times of need. Most customers do not renew gold loans as it is a requirement to meet urgent or immediate needs.
“One-third of customers will repay the loan early and take back the jewelery once the demand is over. It is not a permanent requirement…it does not require a permanent line of working capital like a manufacturer does,” he said.
Currently, KMB disburses gold loans through approximately 560 to 570 branches, accounting for approximately 32% of the bank’s total branch network.