Gold jewellery can't get loans beyond 60% of value

The Reserve Bank of India (RBI) today directed all non-banking finance companies (NBFCs) not to sanction loan beyond 60% of the value of gold jewellery. Incidentally the directive follows government proposing a hike in import duty on the precious metal and imposition of excise duty on unbranded-jewellery. Click here for Cloud Computing Also Read Related Stories News Now - Buyers prefer gold to platinum - India's love for gold disturbs CAD math - Muthoot Finance plans Rs 500-cr bonds issue by month-end - Manappuram director's wife offloads stake - Rajesh Exports posts 51% rise in Q3 net profit - Gold loan companies' shares crash on RBI's public deposit move "It has been decided that all NBFCs shall hereafter maintain a loan-to-value [LTV] ratio not exceeding 60% for loans granted against the collateral of gold jewellery," the RBI said in a notification. Experts are of view that besides imposing higher margins on loan-to-value, it could be the RBI move to step in and keep a check on gold loans disbursed by any gold loan companies and to regulate interest rates on gold loans and penalties. Tightening norms for NBFCs that are engaged in gold loan business, RBI said that they are predominantly involved in lending against the collateral of gold jewellery have recorded significant growth in recent years both in terms of size of their balance sheet and physical presence. "This, in turn, has led to their increased dependence on public funds including bank finance and non-convertible debentures issued to retail investors," it said, adding that all NBFCs should disclose in their balance sheet the percentage of such loans to their total assets. Finance Minister Pranab Mukherjee in the Budget proposed raising custom duty on gold from 2% to 4%. In last 11 months of the current fiscal, gold import resulted in outgo of $60 billion from the forex reserve. The RBI further said that the NBFCs whose financial assets consist of loans against gold jewellery to the tune of 50% or more, will have to maintain 12% tier-I capital by April 1, 2014. Given the rapid pace of their business growth and the nature of their business model, which has inherent concentration risk and is exposed to adverse movement of gold prices as a prudential measure. In order to ensure rules for customer protection, the RBI may also introduce quality checks when gold is returned to the customer by the gold loan companies.