The Reserve Bank of India’s recent notification restricting banks and NBFCs from providing loans against gold coins, bullion and primary gold is unlikely to affect operations of registered-NBFCs.
According to industry players, most of the non-banking finance corporations lend against household and ornamental gold and not for purchasing gold coins or bullion. “Though some of the players do offer loans against purchase of gold or bullion, business may not be in huge volumes. A significant portion of the business is based on loans against used jewellery,” S Dilli Raj, CFO, SKS Microfinance Ltd told Express.
Typically, three types of gold financiers exist -- banks, which lend 60-65 per cent of the gold’s face value, NBFCs that lend 60-85 per cent and pawnbrokers who lend upto 100 per cent. Usually, these are short-term loans with a tenure of upto 12 months.
Most of the NBFCs have majority of their branches in semi-urban and rural areas and majority of their loan book consists of loans of ticket size below Rs 1 lakh.
Interest rates on gold loans hover at about 16-18 per cent for commercial banks and 12 to 25 per cent by NBFCs like Muthoot Finance, Muthoot Fincorp and Manappuram Finance, which do not take deposits but offer loans.
RBI in its notification issued on Monday also asked banks to ensure that the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the board approved limit.
Besides, the central bank also advised that while granting advance against the security of specially minted gold coins sold by them, banks should ensure that the weight of the coin does not exceed 50 grams per customer.
“The RBI’s notification of not allowing NBFCs to lend against gold coins, bullion and primary gold will have no impact on gold loan of NBFCs. AGLOC would like to inform all its stakeholders that gold loan NBFCs lend against household used jewellery only and no advances against have been granted against gold coins, bullion or gold bars etc,” said George Alexander Muthoot, President, Association of Gold Loan Companies (India) AGLOC.
He added that though NBFCs would have appreciated if the regulator could have given a level-playing field at par with the banks by allowing them the leeway of lending against gold coins weighing up to 50 gms per customer, as a new avenue of lending.
It may be mentioned that the Reserve Bank had imposed restrictions on banks on gold imports, which led to forex outflow and widening of the current account deficit.
