State Bank to cut loan-to-value gold loan ratio

Last Updated: Wed, Apr 17, 2013 04:12 hrs

State Bank of India will review its loan-to-value (LTV) ratio for gold loans on the back of a sharp fall in the price of the yellow metal in the past few days.

Currently, SBI's LTV for gold loans is 70 per cent. The Reserve Bank of India (RBI) had asked gold loan non-banking finance companies to have an LTV ratio of 60 per cent but has not mandated any such ratio for banks.

"We extend gold loans up to 70 per cent of the peak of the value of the gold. Therefore, the recent fall in gold prices, will not impact us. However, keeping in mind the possibility of further correction in gold, we have to review our advisory, in terms of loan-to-value," said Pratip Chaudhuri, chairman. He said SBI's gold loan exposure was mostly in the agricultural sector, classified as a priority one.

Gold prices declined by a steep 11.87 per cent in the last one week from Rs 29,390 for 10 grams to Rs 25,900 for 10 grams.

On Tuesday alone, standard gold fell 2.45 per cent from Rs 26,550 for 10 grams in Mumbai's Zaveri Bazaar.

In London, gold has declined around 16 per cent since the beginning of this year and 33 per cent from the peak of $1,920 an oz to trade currently at $1,388 an oz.

Global advisory firm UBS has forecast gold price to decline further to $1,250 an oz.

Federal Bank's LTV ratio up
Old generation private lender, Federal Bank, allayed fears on likely impact on the banks business on account of falling gold prices. However, the recent drop in prices has increased its LTV ratio, said Shyam Srinivasan, managing director and CEO of the bank.

Federal Bank has a gold loan portfolio of Rs 6,200 crore.

In a conference with the brokers today, Srinivasan said, "Recent drop in gold prices have taken the bank's LTV ratio to 77-78 per cent from the earlier 60 per cent range."

He, however, added the bank is watchful about the portfolio and will take necessary steps warranted.

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