Implementing the guidelines proposed in the RBI's draft on gold loans will slow down the asset growth of non-bank financiers in the segment, as per a report released on Tuesday. According to a Crisil report, the draft focuses on loan to value (LTV) and renewal/top-up of bullet loans which may have a bearing on the loan growth of non-banking financial companies ( NBFCs) engaged in providing gold loans.
The draft was issued in April with the intent to harmonise the regulatory framework across entities and address differences in lending practices.
Crisil said the draft comes against the backdrop of RBI, in September 2024, highlighting irregular practices amid a significant increase in the loan-against-gold jewellery portfolio of some lenders. It had asked lenders to comprehensively review their policies, processes and practices to identify gaps and initiate remedial measures in a timebound manner.
In FY25, the overall good loan for the systems had come at over 50 per cent, which includes a more than doubling up of portfolio for banks, it said.
"The directions on LTV computation and breaches thereof can impact the growth prospects of gold-loan NBFCs as they will have to recalibrate their disbursement values," the agency's director Malvika Bhotika said.
For bullet loans, the agency expects LTV at disbursement to reduce from 65-68 per cent currently to 55-60 per cent to factor in accrued interest and ensure LTV compliance.
"This will mean lower loan disbursement for the same value of gold jewellery," Bhotika said.
NBFCs may also look at periodic interest collection from their customers to manage LTVs, it said, adding that these entities may decide to focus on EMI-based products, Bhotika said.
On the other hand, the additional provisioning for LTV breaches, although higher than at present for Gross Stage 1 assets maintained by most NBFCs, is unlikely to have a significant impact on profitability during the transition period.
Another important direction is on the process for loan renewal and/or top-up. Renewals of, or top-ups on, bullet repayment loans can be extended only after the repayment of the entire accrued interest. This will reduce the flexibility of borrowers and curtail the ability of NBFCs to renew/top-up loans seamlessly, the agency said.
The directions are expected to structurally strengthen the sector over time, the agency said.
The draft was issued in April with the intent to harmonise the regulatory framework across entities and address differences in lending practices.
Crisil said the draft comes against the backdrop of RBI, in September 2024, highlighting irregular practices amid a significant increase in the loan-against-gold jewellery portfolio of some lenders. It had asked lenders to comprehensively review their policies, processes and practices to identify gaps and initiate remedial measures in a timebound manner.
In FY25, the overall good loan for the systems had come at over 50 per cent, which includes a more than doubling up of portfolio for banks, it said.
"The directions on LTV computation and breaches thereof can impact the growth prospects of gold-loan NBFCs as they will have to recalibrate their disbursement values," the agency's director Malvika Bhotika said.
For bullet loans, the agency expects LTV at disbursement to reduce from 65-68 per cent currently to 55-60 per cent to factor in accrued interest and ensure LTV compliance.
"This will mean lower loan disbursement for the same value of gold jewellery," Bhotika said.
NBFCs may also look at periodic interest collection from their customers to manage LTVs, it said, adding that these entities may decide to focus on EMI-based products, Bhotika said.
On the other hand, the additional provisioning for LTV breaches, although higher than at present for Gross Stage 1 assets maintained by most NBFCs, is unlikely to have a significant impact on profitability during the transition period.
Another important direction is on the process for loan renewal and/or top-up. Renewals of, or top-ups on, bullet repayment loans can be extended only after the repayment of the entire accrued interest. This will reduce the flexibility of borrowers and curtail the ability of NBFCs to renew/top-up loans seamlessly, the agency said.
The directions are expected to structurally strengthen the sector over time, the agency said.
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