The CSB Bank has tightened the gold loan policy after NPAs
The CSB Bank has tweaked its policy of gold loan, and it has been the mainstay of the low-risk lending model. According to the bank, the loan to value ratio has been relaxed by the bank for these kinds of loans up to 90% but it has been considered a mistake now because it has triggered the auctions and also resulted in the portfolio.
The CSB Bank MD and CEO C V R Rajendran told TOI that the bank has to have a recovery team for gold loans.
“According to him, that was a mistake when the Reserve Bank of India stated that you can lend up to 90% of the value of the gold. He added that we should not have obeyed that statement because it resulted in a fall in price which could wipe out the margin and we may also have to pay some additional margin. The bank has reverted to a 75% loan to value ratio in the month of December, although the Reserve Bank of India allowed the relaxation in the Loan to Value norms up to March 2021.
The bank has revised its pricing strategy to link the rates of interest to the LTV. “There is nothing to worry about at the portfolio level, but the recovery effort is much higher.”, said Rajendran. However, the recovery problems were the lockdown measures. The Government of Kerala had declared a holiday on every alternate day under the Negotiable Instruments Act.
As per the conditions of the market, there are not many participants involved in the auction and the rate of recovery is around 95% of the value of gold. The CSB bank, which is a 100-year-old bank, and the majority of whom are owned by Prem Watsa’s Fairfax Group, Canadian billionaire had announced the plans to transform itself into a whole new bank.