Canara Bank cuts gold loan growth to 15-17% amid regulatory concerns

Stops lending to MSMEs against gold as collateral

Public sector lender Canara Bank has moderated the gold loan growth to 15-17 per cent from earlier pace of 25-30 per cent in the backdrop of regulatory concerns and to balance the portfolio. It has stopped extending loans against gold in metropolitan branches for agriculture purposes, according to K S Raju, managing director and chief executive, Canara Bank.

 

Raju said that from April, being industry leaders in gold loan, the lender took some hard steps like not to lend against gold in metropolitan branches for agriculture.

 

“We are still lending against gold for agriculture in rural, semi urban and urban branches. Bank has also stopped lending to the MSME sector against gold as collateral,” he said.

 

Now it is lending in the retail segment secured by gold, he added.

 

The gold loan was growing at 25-30 per cent for the last three years and the portfolio had reached Rs 1.51 trillion March 2024 and now it touched Rs 1.66 trillion. “Bank being the industry leader thought of doing some benchmarking. Even after taking these steps, the gold loans are growing around 17 per cent which is comfortable for us,” Raju said.  

 

As a step to compensate for the requirement of customers in metropolitan regions where loans against gold for farming was stopped, bank has introduced retail product with much lower loan to value (LTV) ratio of 66 per cent with higher rate of interest. This product has clicked with customers, helping the retail loan growth. With this, the bank expects retail growth to be around 20-21 per cent, Raju said. Retail advances went up 31.27 per cent Y-o-Y to Rs 1.94 trillion in September 2024.

 

Referring to growth in corporate loans, he said since Canara bank has a low share of Current Account and Savings Account (CASA) money, there is a lot of pressure on Net Interest Margins. So the bank never experimented with showing growth at the top level by compromising the pricing of credit.

 

The bank had withdrawn sanctions to the tune of Rs 40,000 crore which were yielding low in March and June quarters.

 

The money was re-deployed with clients where returns are high. Therefore, the yield on corporate book has improved from 7.12 per cent to 8.48 per cent. Now the bank is lending at an eight per cent plus rate.