SMC Global has come out with its report on "Gold Loan Finance Companies". Accordong to the research firm, RBI has released graft guidelines with respect of gold loan NBFC which in our view is beneficial for the industry. The draft guidelines emphasize on increasing the LTV, standardizing the process of valuation of pledged gold, enforcing large transaction through banking route and a supervision on opening of new branches. Overall, we are of the view that the said recommendation, if accepted, will clear the air for gold finance companies including Manappuram and Muthoot finance enabling them to improve their performance ahead.
| Recommendation | Analysis | Impact on gold loan NBFC |
| Increase LTV from 60% to 75% | Importance of gold loan NBFC has been recognized in providing credit facilities in rural areas which remain unbanked | Positive for gold loan NBFC as it will enable them to offer higher loans. However, it will be neutral for those lenders who were inflating the value of jewelry by adding making charges. |
| Standardized process for valuation pledged gold | Committee has recommended that the process of valuing pledged gold should be standardized. Further, the report recommends to include only value of gold to arrive at the LTV | Neutral. Standardized valuation process will lead to higher trust among borrowers |
| Branch expansion will be supervised by RBI | Prior approval has to be taken by NBFC for branch expansion. Alternatively, RBI can impose a ceiling on the number of branches a NBFC can open in a year | Neutral. We do not see this move to impact performance of gold loan NBFC as they already have significant presence and scope to improve loan per branch |
| Cheque payment if loan amount exceeds INR0.2 mn | In order to curb any illegal practice, it is recommended that large transactions should be carried through banking route | Not a major impact for NBFC as ticket size of gold loan NBFC still remains below the prescribed limit |
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