Non-bank lenders approach RBI to raise LTV on gold loans to 90%

KOLKATA: Non-bank lenders that specialise in loans against gold have approached the Reserve Bank of India, seeking to enhance the permissible loan to value (LTV) to 90 per cent of the gold pledged by customers from the existing 75 per cent, as the regulator has done for scheduled commercial banks.

The companies feel that if their LTV is increased at par with banks, they will be able to cater to the financial requirements of a larger segment of lower- and middle-income customers during this stiffening time.

Confirming the matter, Association of Gold Loan Companies (AGLOC) secretary Thomas George Muthoot said: “AGLOC members only deal with gold loans and we have a much better penetration than banks. Gold loan is one of banks’ many businesses. Therefore, we should be given the level playing field and our LTV should also be increased from 75 per cent to 90 per cent. We have written to the RBI but we are yet to hear from them.”

About 98 per cent of the non-bank lenders in India do only lending business and their operations percolate faster than commercial banks to interior villages, he said.

A higher LTV, along with increased gold prices, will enable small businessmen, traders and households to get more loans against gold.

While the gold loan companies are seeking a level playing field with banks, they have also cautioned about the risks due to the current volatility in gold prices. Muthoot Fincorp chairman Thomas John Muthoot pointed out that gold prices, after a sudden surge, fell on August 11 to Rs 52,000 from Rs 57,000 per 10 gms.

“In this high volatility period, the question is how will gold prices perform in the near and long term? While no one can predict the future, most analysts believe that while gold prices will continue to remain bullish in the long term, there will be periodic corrections. Hence gold will continue to remain highly volatile until the macroeconomic situation globally stabilises and this makes a case for traders and lenders to keep a healthy margin rate to avoid massive margin calls, defaults from customers,” he said.

“Though we were unhappy and discontented in 2013, when the RBI brought down the permissible LTV and regulated the maximum lending rates of gold loans by NBFCs, looking back, we feel that was the best thing to happen,” he said. “We are lending against a commodity considered as a safe haven investment. But it is largely dependent on various factors ranging from the global economic situation, movement of dollar, and many other intangible ones and it is, therefore, important that we keep a sufficient cushion. It would be a very short-term thinking for permitting banks to lend up to 90 per cent LTV since it requires a close watch on price movements.”

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