Mar 22, 2012 12:24 PM IST | Source: Moneycontrol.com

RBI tightens norms for gold loan companies

The Reserve Bank of India (RBI) on Wednesday directed non-banking finance companies engaged in gold loan business to maintain a loan to value (LTV) ratio of 60%. Those NBFCs whose financial assets consist of loans against gold jewellery to the tune of 50% or more will have to maintain 12% tier I capital.

RBI tightens norms for gold loan companies

Moneycontrol Bureau

The Reserve Bank of India (RBI) on Wednesday issued a notification directing all non-banking finance companies engaged in gold loan business to maintain a loan to value (LTV) ratio of 60%. This means, a borrower has to pledge gold jewellery worth Rs 100 to get a loan of Rs 60.

"Lowering of LTV would not impact our business. The number of pledges will increase only," a top official from a Kerela based gold loan company told Moneycontrol.com on condition of anonymity.

"Typically, small shop owners or people from unorganised sector take gold loans under emergency situation. Those people will not stay away from taking gold loans just because they have to pledge more gold jewellery. We do not expect any erosion of the profit margin," he said.

The existing LTV ratio for gold loans, according to industry players, is in the range of 65-75%. On an average the ticket size of such loan is around Rs 32,000-35,000 with 4-6 months tenure. Companies charge 12.50-20% rate of interest depending on the loan value and tenure. 

"We are yet to (summerise) our comments on this. Our LTV is currently at 65%," Thomas George Muthoot, director Muthoot Fincorp told  Moneycontrol.com briefly.

"Given the rapid pace of their business growth and the nature of their (gold loan companies) business model, which has inherent concentration risk and is exposed to adverse movement of gold prices, as a prudential measure, it (measures) has been decided,

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