MUMBAI: The recent regulatory curbs in the gold loan space, requiring lenders to review their policies and processes in a timebound manner, can impact gold loan disbursements and contain the growth of the sector, Crisil Ratings said in a note Tuesday.
Some areas highlighted in the RBI circular pertain to deficiencies in the monitoring of the loan-to-value ratio, asset classification norms for overdue loans, and inadequate due-diligence in monitoring the end-use of gold loans, among others.
The circular came in the backdrop of high growth in the gold loan portfolio of both banks as well as NBFCs over the past few quarters. Retail loans against gold jewellery of banks jumped 37 percent between April and August 2024 even as gold prices rose. For the gold-loan focused NBFCs, growth in assets under management in the first quarter of this fiscal was 11 percent over the previous quarter.
According to Malvika Bhotika, a director with the agency, the new regulations aim to ensure consistent application of guidelines in the gold-loan space and protect borrower interest. Adherence is likely to impact disbursements over the next few quarters and taper gold loan growth both for banks and NBFCs.
That said, NBFCs are expected to adapt to the regulatory measures impacting their business within a reasonable timeframe, just as in the recent past, when limits were placed on cash disbursals, she said.
The curbs may also lead to a spike in delinquencies as entities revisit their current non-performing assets recognition norms and/or policies and procedures for disbursing loans to existing customers.
Nevertheless, in the gold loan business, credit cost is the more appropriate indicator of asset quality and overall credit losses are seen under control. This is because of the strong, sentimental attachment that Indian borrowers have for their gold assets, which makes them relatively keener to get them back by repaying loans.
The ability of lenders to conduct timely auctions and recover dues also supports low ultimate credit losses. Overall, the issues highlighted in the RBI circular are quite extensive and therefore any impact on the credit profiles of rated entities will be monitorable.
However, the impact of the strict adherence to online disbursals of loan money and also collections of above Rs 20,000 may not have much impact on business growth as most NBFCs have already transitioned to digital channels for disbursements.