RBI report on gold loans beneficial to companies

The recent observations by the Reserve Bank of India (RBI) on gold loan companies are expected to help NBFCs (non banking finance companies). RBI has recommended LTV (loan to value ratio) to be raised to 75% from 60% currently. “Earlier, this was a grey area with a risk that RBI may arrest the loophole. But if the rate is fixed at 75%, then it would not lead to any material change on ground as to the amount of loan the NBFCs can disburse against jewellery, while concerns regarding the grey area would be eliminated,” said Angel Broking in a recent report.

The working group also recommends limiting the lending rates of gold loan NBFCs by linking them to a benchmark rate. And with the lending rates being capped for micro finance institutions at 24% by RBI, this cap can be lower for gold loan companies, adds the report. “The calculated yield on assets for listed gold loan companies is 20%-25% currently. In our view, capped lending rates could impact the profitability of gold loan NBFCs in the near term, though the final fineprint on this remains to be seen,” adds Angel Broking.

RBI’s working group also proposes to formalise and tighten existing KYC (know your customer) norms by mandating use of PAN cards and cheques for loan disbursals above Rs two lakh. “As we understand, less than 10% of the loan book of NBFCs is above this ticket size, thereby making it relatively less challenging to comply operationally,” adds the report.

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