SBI expresses concerns over declining gold prices

SBI expresses concerns over declining gold pricesA decline of up to 20 per cent in gold prices would not impact the State Bank of India (SBI) but any further decline would definitely become an issue, Pratip Chaudhuri said.

On Tuesday, gold prices slipped more than 10 per cent to a two-year low of Rs 25,900 per 10 grams, and the decline is expected to continue in the near future.

Mr. Chaudhuri, chairman of the country's biggest lender, said that the lender would reduce the quantum of loan amount it gives against gold collateral, as a precautionary measure.

The bank is planning to reduce the so-called LTV (loan-to-value) ratio, which currently stands at 70 per cent. Over the past few months, LTV ratios have jumped high, particularly because of intensified competition and alleged loopholes in regulatory norms.

The lender's gold loan portfolio stands at Rs 35,000 crore, which accounts for slightly more than 3 per cent of its gross advances.

Associate Director Prakash Agarwal, of India Ratings, said, "Falling gold prices, if sustained, can significantly impair the asset quality of the gold loan portfolios of non-banking finance companies (NBFCs) and banks."

An additional 10 per cent decline in prices of the yellow metal could result in a majority of lenders' outstanding loan amounts being higher than the realizable value of collaterals, which would inflate their losses.