Shares of gold loan Cos fall after RBI limit lending

Moneycontrol Bureau

Shares of gold loan companies were down in the morning trade after the Reserve Bank of India (RBI) cut banks’ credit exposure to gold loan from 10% to 7.50%. Kerala based Muthoot Finance was trading at Rs 128, down nearly 3% while Manappuram tanked more than 5% to Rs 32.

“Banks should reduce their regulatory exposure ceiling in a single NBFC, having gold loans to the extent of 50% or more of its total financial assets, from the existing 10% to 7.5% of bank’s capital funds,” RBI said in the policy statement.

“However, exposure ceiling may go up by 5%, i.e., up to 12.5% of bank’s capital funds if the additional exposure is on account of funds on-lent by NBFCs to the infrastructure sector. Banks should have an internal sub-limit on their aggregate exposure to all such NBFCs, having gold loans to the extent of 50 per cent or more of their total financial assets, taken together.”

By limiting banks’ lending exposure, the cost of borrowing for the non-banking finance companies are expected to go up. This in turn, would force the companies to pass on the higher rates to their customers.