Manappuram, Muthoot Finance slip on new RBI norms

Moneycontrol Bureau

Shares of gold loan financing companies like Manappuram and Muthoot Finance are under pressure Tuesday after the Reserve Bank of India (RBI) notified new norms for these companies on September 16. As per the new norm, gold loan financing companies should have appropriate infrastructure for storage of gold ornaments. "It is important that a minimum level of physical infrastructure and facilities is available in each of the branches engaged in financing against gold jewellery including a safe deposit vault and appropriate security measures for operating the vault to ensure safety of the gold and borrower convenience. No business of grant of loans against the security of gold can be transacted at places where there are no proper facilities for storage/security," RBI in its notification said. Also Read - Ranbaxy gains 6%; Nomura says buy but lowers target The central bank made mandatory for NBFC to obtain prior approval of the Reserve Bank to open branches exceeding 1000. "However, NBFCs which already have more than 1000 branches may approach the central bank for prior approval for any further branch expansion. Besides, no new branches will be allowed to be opened without the facilities for storage of gold jewellery and minimum security facilities for the pledged gold jewellery," the RBI said. The RBI has reiterated that the loan-to-value (LTV) ratio for loans against jewellery continues to be at 60 percent. Currently, there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary and opaque. In order to standardise the valuation and make it more transparent to the borrower, the RBI decided that gold jewellery accepted as collateral will have to be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the Bombay Bullion Association (BBA). "While accepting the gold as collateral, the NBFC should give in writing to the borrower, on their letter head giving the purity (in terms of carats) and weight of the gold. If the gold is of purity less than 22 carats, the NBFC should translate the collateral into 22 carat and state the exact grams of the collateral," according to RBI's notification. At 11:33 hours IST, Muthoot Finance was down 5.6 percent at Rs 106.60 and Manappuram Finance lost 4 percent to Rs 15.60 on the Bombay Stock Exchange. (Posted by Sunil Shankar Matkar)