Banks gaining an edge in gold loan rush

Indian gold loan market appears to be moving toward conventional banks, posing difficulties for reputable gold loan businesses like Muthoot Finance and Manappuram Finance. When gold prices increase, these two NBFCs with southern roots have historically seen stronger growth in their gold loan portfolios. The most recent trends, however, indicate that established banks with a significant presence in the southern regions, such as CSB Bank, Canara Bank, SBI, HDFC Bank, and Federal Bank, are now taking the lead with a sharper focus, quicker response times, and better loan rates. Industry professionals believe that CSB Bank is the most promising choice for investors hoping to profit from the current gold cycle.

NewsOTG gathered that in the December quarter, the bank rapidly extended its portfolio of gold loans, which grew by 60%. 45% of the bank’s total portfolio now consists of gold loans, up from 20% three years ago. Increased gold loans have caused CSB Bank’s non-performing assets and profitability to consistently improve. In the quarter ending in December 2022, its net interest margin (annualized) increased from 5.4% one year prior to 5.8%; additional growth is anticipated. Operational profit increased 31% year over year for the quarter, and net NPA decreased to 0.42% from 1.36% in the prior year. CSB Bank is valued at 1.6 times its book value and less than 9 times its price-to-earnings ratio, which may appeal to investors.

In contrast, investor interest in gold lending businesses like Muthoot Finance and Manappuram Finance has remained subdued; in the December quarter, gold loans increased by 5% and shrank by 9%, respectively, year over year. Notwithstanding the difficulties faced by gold lending businesses, India’s gold loan market continues to be a substantial source of income. Investing in state-owned companies like Hindustan Aeronautics is a critical way to raise money so the government can invest in infrastructure. In this context, the Indian government has put out a proposal to sell up to 3.5% of Hindustan Aeronautics, which is worth $384 million or Rs 2,867 crore. In order to fulfill the listing requirements set forth by the Securities and Exchange Board of India, the offer for sale is being made in order to obtain the required minimum public shareholding.