RBI to Tighten Grip on Gold Loans

Bangalore: The Reserve Bank of India (RBI) has instructed Non-Banking Finance Companies (NBFCs) not to extend their gold loan services beyond 50 percent of their financial assets, as reported by Vishwanath Nair, of DNA.

Usually, such gold loan firms keep gold as collateral from customers. The new rule is being imposed on the gold loan sectors, along with individual NBFCs. The annual monetary policy of RBI states that banks need to reduce their dependence on a single gold loan NBFC from 10 percent to 7.5 percent of their capital funds. RBI says that “rapid” development of such NBFCs “has inherent concentration risk.” NBFCs, however, were untroubled by this step of RBI.

The RBI has instructed NBFCs to increase their capital requirement in Tier-I cities from 10 percent to 12 percent by April 1, 2014. RBI has restrained NBFCs from lending against gold coins and primary gold. The loan-to-value of gold jewellery has also been fixed at 60 percent. However, RBI has not specified anything about the practice of including jewellery-making charges and spot prices of gold in loan amount.