PSBs expand agriculture gold loan portfolio for easy assessment and recovery

Large public sector banks like State Bank of India (SBI) and Bank of Baroda (BoB) are gradually building up their agricultural gold portfolio as valuation of loan amount as well as recovery is relatively easy.

SBI’s agricultural gold loan portfolio witnessed healthy growth in FY23, rising to Rs. 83,000 crore on March 31, 2023 from Rs. 73,600 crore on March 31, 2022.

The size of the agricultural gold loan portfolio of India’s largest bank was three times that of the Retail Gold Loan (“Personal General Purpose Loan against Pledge of Gold Ornaments”) (worth Rs. 28,705 crore) as of the end of March 2023.

BoB Bank’s agricultural gold loan portfolio grew by 30.47 per cent to Rs. 35,829 crore as of end-March 2023 from Rs. 27,459 crore as of end-March 2022.

The contribution of agricultural gold loans to total agricultural advances increased to 28.49 percent in fiscal 2023 from 25.14 percent in fiscal 2022 and 22.30 percent in fiscal 2021, according to the annual report of the Bank of Bahrain.

Gold loans can be beneficial to the farmer when the credit limit is fixed by the bank under the Kisan Credit Card Scheme (which enables the farmers to easily purchase agricultural inputs such as seeds, fertilizers, pesticides, etc., withdraw cash for their production needs, and take care of investment credit requirements their own) does not meet its actual requirements.

For banks, recovery of agricultural gold loans is simple as in the event of default the pledged gold can be auctioned off. But in the case of obtaining an ordinary agricultural loan, the recovery process can be extended as the security provisions on mortgaged agricultural lands are generally implemented through the law of revenue recovery in the respective countries, which necessitates the participation of the state authorities.

Banking expert V Viswanathan noted that banks usually prefer gold loans because of the ease of assessing the eligible loan amount and retrieving it via auction without legal intervention.

In addition, bankers prefer gold loans under the agricultural sector as the bank’s priority sector lending targets under general agriculture and loans to sub-segments of small and marginal farmers can be met.

“Farmers prefer Agricultural Gold Loan over Personal Gold Loans because the interest rate is 7 per cent for crop loans of up to Rs 3,000 and they are eligible for 3 per cent interest subsidy if the said loan is repaid/renewed before the due date. So, the rate The actual interest is up to 4 per cent,” Viswanathan said.