RBI norms to impact growth, profitability of gold loan cos
ICRA has come out with its report on 'RBI measures to impact growth and profitability of gold loan companies'. The rating agency has outstanding on three single-line Gold loan companies - Muthoot Finance, Manappuram Finance, & Muthoot Fincorp.
March 22, 2012 / 19:33 IST
ICRA has come out with its report on 'RBI measures to impact growth and profitability of gold loan companies'. The rating agency has outstanding on three single-line Gold loan companies - Muthoot Finance Limited (rated [ICRA] AA-(stable) / [ICRA] A1+), Manappuram Finance Limited ( [ICRA] A+ / [ICRA] A1+ under rating watch with developing implications), and Muthoot Fincorp Limted (rated [ICRA] A1+).
Gold loan companies have reported an estimated compounded annual growth rate (CAGR) of over 100% during the last three years, with the portfolios of the top three companies cumulatively exceeding Rs. 41,000 crore as on December 31, 2011. Given the rapid pace of business growth and the risks involved (concentration risk and market risk because of adverse movements in gold prices), the Reserve Bank of India (RBI) has, since March 22, 2012, introduced prudential measures for non-banking financial companies (NBFCs) that have over 50% of their financial assets in gold loans. The new measures are likely be a credit positive in the long term for gold loan companies, given that stringent loan-to-value (LTV) ratios have been introduced, and NBFCs have been required to maintain a higher level of superior capital (Tier I capital of 12% by April 1, 2014, as against around 10% currently). However, in the short term, fresh disbursements could reduce because of the lower LTVs, even as delinquencies could build up as the loan eligibility of borrowers seeking refinance would decline, although the loss given default is likely to remain low because of the collateral value. The RBI measures are also likely to impact the competitive position of gold loan companies versus banks and diversified NBFCs (since the measures apply only to NBFCs with over 50% of their financial assets in gold loans).The key highlights of the RBI measures and their likely impact are presented in the following two sections.Key Measures
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