[ad_1]
The RBI’s move is seen as negative for gold loan NBFCs, primarily due to the LTV limi
The Reserve Bank of India (RBI) today introduced draft guidelines on gold loans, tightening the compliance standards for lenders on assaying the quality of gold, monitoring end-use of funds, handling gold, harsh penalty for not returning gold on time to borrower upon completing loan repayment, and fixing the loan-to-value (LTV) ratio at 75 per cent.
Banks tend to keep the gold loan LTV ratio at 60-70 per cent, while non-banking finance companies (NBFCs) assign an LTV ratio of 70-80 per cent on gold loans. The RBI had barred IIFL Finance in March 2024 from sanctioning gold loans due to material supervisory concerns, including assigning a higher LTV ratio on gold loans. As the regulator clarified today that NBFCs cannot keep LTV ratio on gold loans above 75 per cent, shares of gold loan NBFCs like Muthoot Finance and Manappuram Finance fell by up to 9 per cent.
“The RBI’s move is seen as negative for gold loan NBFCs, primarily due to the LTV limit. They have brought in higher uniformity via the circular. The regulator is stringent on banks maintaining an LTV ratio below 70 per cent. NBFCs assigned LTV ratio at the time of sanction of the loan, while banks assigned LTV ratio basis the maturity date of loans,” a senior banker said.
According to A M Karthik, Senior Vice President & Co-Group Head, Financial Sector Ratings at ICRA, the draft guidelines on gold loans provide improved clarity on the applicable LTV for the lenders.
“The cap in the LTV at 75 per cent on an ongoing basis through the tenor for gold loans extended for consumption purposes and for the gold loans by NBFCs, could have some near-term impact on growth,” he said. The additional provision of 1 per cent in case of breach in LTV should, however, be manageable for large NBFCs operating in this segment, considering their overall business yield and healthy earnings performance.
“Notwithstanding the above, the impact of the evolving competitive environment in view of the new harmonised regulations on NBFCs’ performance shall remain monitorable,” he said. If the end use is for income generation, lenders (excluding NBFCs) can prescribe an LTV ratio as part of their policy, he said. However, additional due diligence, including borrower cash flow assessment and primary security creation process, could be operationally onerous.
The RBI also said lenders shall ensure that the gold collateral is handled only in their branches and only by their employees, a move which could hurt bank partnership with fintechs for gold loans, where sourcing, assaying and transportation of gold is done by a third-party to the bank.
V.P. Nandakumar, MD & CEO, Manappuram Finance, however said that the RBI’s decision to harmonise gold loan rules and regulations will be beneficial for all stakeholders, especially gold loan NBFCs, as there is currently no level playing field.
“NBFCs have always been at a disadvantage compared to banks, as the latter have access to cheaper funds, are eligible to offer gold-based agricultural loans, enjoy higher loan-to-value ratios, and benefit from favourable renewal policies. This scenario will change following the central bank’s latest decision, which we wholeheartedly welcome,” he said.
Published on April 9, 2025
[ad_2]
Source link
