SBI, other PSU banks set to focus on gold loan business; Anil Singhvi explains impact on gold finance companies

In an exclusive report by Zee Business, the Government of India (GoI) has asked SBI and other PSU banks to enter the gold loan business. Speaking on the impact of this step by the GoI on gold finance companies, Zee Business Managing Editor Anil Singhvi said that it will hit the gold finance companies hard as the PSU banks will levy gold loan interest rate to the tune of 8 per cent to 9 per cent, which is much lower than the gold loan interest rate being levied by the gold finance companies these days.

Comparing the gold loan interest rate of gold finance companies and the proposed PSU banks gold loan interest rate, Anil Singhvi said, "If the PSU banks enter the gold loan business, it will break the monopoly of the gold finance companies that levy much higher interest rate on the borrowers. According to our sources, SBI and other PSU banks have been told by the GoI to enter the gold loan business keeping interest rate around 8 per cent to 9 per cent, which is much lower than the interest rate levied by the gold finance companies."

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Singhvi said that gold finance companies levy 13 per cent to 14 per cent interest rate on the big ticket size gold loans which is above Rs 25 lakh. Such big ticket sized gold loans comprise near 54 per cent of the net portfolio of the gold finance companies. Similarly, there is loan size from Rs 5 lakh to Rs 25 lakh which constitute around 12-13 per cent of the gold finance companies business portfolio and on these loans the interest rate being levied is around 16 per cent while on small ticket size gold loans from Rs 1 lakh to Rs 5 lakh, gold finance companies are levying up to 20 per cent interest rates.

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"Due to the high interest rate being levied by the gold finance companies, PSU banks entering the gold loan business is a good news for the customers as it will enable them to get gold loans at less than 50 per cent from what is being charged under current circumstances," concluded Anil Singhvi.