New RBI rules to impact unorganised gold loan cos: Muthoot

Q: Can you take us through what the competitive scenario would now look like? Most of the banks were still not even lending at 75 percent loan-to-value (LTV).

Muthoot: More than all this competitive environment and things it is an acknowledgement by the Reserve Bank of India (RBI) or the regulator that non-banking financial companies (NBFC) as well as banks provide the same type of loans to customers and the net effect of this is that banks and NBFCs will be able to compete well with the unorganised sector today. The unorganised sector had been having a fairly good run in the last one year or one and half years when there were a lot of uncertainties with regards to gold loans, gold loan NBFCs and LTV etc. Now that all those things have been resolved and resolved to a very good extent with very good competitive rate LTV of 75 percent, both for the banks as well as for NBFCs I am sure the organised sector including banks and NBFCs will be able to give real competitive business for the unorganised sector and the customers would also be very much relieved that they can come to NBFCs and banks and avail gold loans from the organised sector. That is the benefit I see in all this.

Q: Could you tell us if Indian Overseas Bank (IOB) itself has a gold loan portfolio and even if you do not as a banker could you tell us how did you read the RBI's measures yesterday to cap the LTV of gold loan portfolio at 75 percent for banks. How does that change the turf for the banking space?

Narendra: We have been having an average around 66 percent only which has been done with a view that there has been volatility in gold value, so this LTV ratio up to 66 percent that will really help the bank in ensuring that there is enough margin and even from the customer's angle. So today whether up to 75 percent which is in line with policy given for NBFCs I think it is a level playing field and it is a good bet, so in terms of that whenever an opportunity is there bank has an opportunity to increase the LTV ratio up to 75 percent and the minimum 25 percent margin is necessarily kept in a way to see that there is contribution from the person who is borrowing against jewellery. So I think the guidelines are in line with RBI and we also have been following and our overall currently is much below that.

Q: Even the collateral has to now be valued at the average closing price of 22 carats gold of the preceding 30 days. How does it change in terms of the valuation of gold loan?

Narendra: We have been doing the valuation on that line only and we have been communicating the notional value. These are all constantly getting updated depending on the market value of gold. So the fact that it is up to 22 carats, because it has to be in line with the intrinsic value and this is also in line with the NBFC guidelines which have been given earlier. So we welcome it and we will be perfect on our part to ensure that it is to the extent of its carat, so the valuation has to be perfectly valued.

Q: Have you all already begun hiking your LTV to 75 percent, because that just came through from the RBI just a couple of days ago. Has this process already begun?

Muthoot: The instructions came from the RBI 10 days back and we have already revised the LTV to the maximum of 75. Please understand that it is not that every customer wants 75 percent. Some customers need much lesser. It is only a few customers or some part of the customers who want the maximum. Only they are given 75 percent of LTV. We have started doing that in the last 10 days itself and all our branches have been connected with a computer and we give the maximum rate which they can give to a customer everyday online. So the branches will work only according to that. So we will fix the rates from here depending on the bullion rates.