State Bank of India, on Tuesday, said it did not see any stress on its Rs.35,000-crore gold loan portfolio because of the plummeting prices of the precious metal, but said it would revise its loan-to-value (LTV) ratio from the present 70 per cent.
“Generally we keep a 30 per cent limit (of value). Yes, we will have to review that. That (LTV) will be adjusted... We would be revising our advisory for gold loans with the valuations (dropping),” SBI Chairman Pratip Chaudhuri told reporters here.
The Chairman said the bank’s LTV ratio was based on the prices of the peak value.
“Gold prices have dropped, but still they are above 70 per cent of the peak value,” he said.
He added that the bank did not lend against gold in the conventional manner and that its portfolio of Rs.35,000 crore comprised agricultural advances to farmers, wherein pledging of gold as a security increased the value of the advances he or she got.
“As of now, there is no immediate impact of the drop in prices. Generally, our gold is only moral suasion, very seldom we forcibly take away the gold and realise the gold. To that extent, we are not so much dependent on the value of the gold,” he said.
It should be noted that the Reserve Bank of India has for long been expressing concerns over a potential stress because of the rise in gold loans. It also decreased the LTVs for non-banking lenders to 60 per cent because of concentration risks in April, 2012. However, the strongly regulated banks are outside this limit.
The comments from SBI chief come amidst a steep fall in the value of gold on Tuesday, which has hit a 21-month low of Rs.1,160 to Rs.26,440 tracking weak global cues. Tuesday’s fall is the third consecutive decline.
Mulls merging one of its associate banks
Meanwhile, Mr. Chaudhuri said the bank was contemplating merging one of its five associate lenders with itself this year as the parent bank’s capital base expanded.
Additionally, the largest lender would seek a go-ahead for raising capital from an institutional placement of shares, he said, adding that such a move would also help expand the capital base necessary for a merger.
“We will definitely think of a merger this year. As the capital base expands, we will definitely think. This year I think, the capital position should be comfortable,” he said.