RBI moves on gold loans positive for NBFCs: Crisil

Mumbai  January 23, 2014: Welcoming recent moves by the Reserve Bank on the gold lending front, ratings agency Crisil today said they bring the much-needed parity between banks and NBFCs.

"These decisions bring in a level-playing field for gold loan non-banking financial companies (NBFCs) and banks on the loan-to-value ratio (LTV), a key parameter for competitive dynamics in the sector.

"The moves will bring the much-needed stability to the sector, which has witnessed quite a tumultuous journey in the past two years," the agency added.

"The gold loan NBFC sector, which has witnessed volatile phases in growth, asset quality, and profitability in the past two years, will move to a regime of stable growth and predictable asset quality."

In twin moves over the past fortnight, the RBI first increased the LTV ratio for non-banking lenders back to the earlier level of 75% from the 60%, which was reduced in the aftermath of crash in gold prices.

The apex bank followed this up with pegging the LTV ratio for gold lending by banks at 75%. Even in the days of lowering LTV for NBFCs, RBI had chosen not to cap the ratio for banks. This led to an impression that the apex bank feels banks are better regulated than NBFCs.

Apart from these guidelines, the RBI also gave specific instructions on gold valuation and Crisil said this will provide clarity on the underlying collateral.

The rating outfit, however, said the profitability of gold loan NBFCs will continue to be under pressure because of the intense competition in the sector and higher operational cost of compliance to the new regulations. 

Courtesy: The Business Standard