RBI also made it clear henceforth that, NBFCs should not grant any advance against bullion or primary gold and gold coins. Also, RBI observed that NBFCs who are predominantly engaged in lending against the collateral of gold jewellery have recorded significant growth in recent years.

The Reserve Bank of India (RBI) has decided to impose stricter norms for lending against gold by non-banking finance companies (NBFCs) as huge growth in such loans in the past few years increased risks to the banking system as well as retail investors. In a notification RBI said it has directed NBFCs, especially those who have 50 per cent of their assets in gold should have a minimum equity capital of 12 per cent by April 2014. Further, the apex bank decided that all NBFCs shall, hereafter maintain a Loan-to-Value (LTV) ratio, not exceeding 60 per cent for loans granted against the collateral of gold jewellery and also disclose in their balance sheet the percentage of such loans to their total assets.

RBI also made it clear henceforth that, NBFCs should not grant any advance against bullion or primary gold and gold coins. Also, RBI observed that NBFCs who are predominantly engaged in lending against the collateral of gold jewellery have recorded significant growth in recent years both in terms of size of their balance sheet and physical presence. This in turn led to their increased dependence on public funds including bank finance and non-convertible debentures issued to retail investors, it added. Meanwhile, Muthoot Finance in a release issued here welcomed the measure taken by RBI which will go a long way in ensuring that the players in the industry have robust capital structure to address any possible fall in gold prices. It felt that RBI has taken these steps in order to regulate the risk especially with respect to new entrants to the sector, who may not be aware of the various nuances of the business and also to strengthen the existing companies.

The company also pointed out that currently its gold loan assets under management is around Rs 24,000 crore and roughly the value of jewellery with it is more than Rs 40,000 crore. Hence, it added: “Our LTV is below 60 per cent and as a matter of abundant caution we had been progressively reducing our lending rate per gram as a risk management measure, seeing the volatility in the gold prices during the last couple of months.”