In the light of falling gold prices, the Association of Gold Loan Companies (AGLOC), Monday advised its member companies to reduce their maximum lending rate.
“AGLOC will advise its members of any further change in the maximum rate of loan per gram of gold,” it said. Gold prices dropped nearly 18 per cent over the past six months. Currently, NBFCs’ maximum lending rate is about 24 per cent, while banks lend at 14-15 per cent.
“We believe that a 15-20 per cent price fluctuation in gold prices will not have any significant impact on the gold loan portfolios of member companies as they have already factored already such fluctuations in the business model,” AGLOC said adding, “Though gold price is an important factor in gold loan business, the business model should not be misunderstood as a business of financing of gold bullion or shares, where in mark-to-market valuation could affect the repayment behaviour of the borrower.”
According to AGLOC, the gold loan companies have a system of regularly calling up their borrowers and reminding them about the dues on the loan.
“Majority of the gold loan companies are lending against household jewellery where the impact of such temporary fluctuations on the business model are maximum. These loans are of short duration of 3-6 months. Compared to the disbursements, NPA levels are low,” said George Alexander Muthoot, President, AGLOC.
Most of these companies have their branches in semi-urban and rural areas and majority of their loan book consists of loans of ticket size below `1 lakh. Hence, probabilities of defaults are low inspite of fall in gold price.
“We have asked member companies to review existing collection mechanism and further strengthen it. There should be regular monitoring of overdue and high loan to value loan accounts. Companies should auction defaulted and abandoned loan accounts with due compliance to fair practice code stipulated by RBI,” he said.
