A Shot in the Arm for NBFCs as RBI Hikes Gold LTV Ratio to 75% - The New Indian Express

A Shot in the Arm for NBFCs as RBI Hikes Gold LTV Ratio to 75%

Published: 10th January 2014 06:00 AM

Last Updated: 10th January 2014 01:20 AM

The Reserve Bank of India (RBI) has permitted non-banking financial companies (NBFCs) to lend up to 75 per cent of the value of gold as collateral from 60 per cent at present.

Shares of gold financing companies Muthoot Finance and Manappuram Finance Ltd surged 20 per cent and hit the upper limit on the Bombay Stock Exchange after the development to close Thursday at Rs 129.10 and Rs 18.15 respectively.

The KUB Rao working group had recommended that the loan to value (LTV) ratio may be increased from 60 per cent to 75 per cent once the business levels of the gold loan NBFCs come to a level considered appropriate, RBI said.

The RBI also clarified that while some NBFCs are adding making charges etc, the value of the jewellery for the purpose of determining the maximum permissible loan amount will be only the intrinsic value of the gold content therein and no other cost elements should be added to it.

Analysts said that the move will make gold loan products more attractive to borrowers.

A report by Angel Broking said that the development will result as a positive for NBFCs with gold loan products and signals that the regulator is comfortable with the former’s books and would want them to pay a role in the monetisation of idle gold in the country.

CEO of a NBFC with gold loan products reportedly said that the loan book was likely to grow significantly after the LTV norm was pushed up from 60 per cent to 75 per cent.

Analysts added that the decision to relax the rules was on account of stabilizing gold prices and falling loan books of these NBFCs.

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