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Gold loan cap will fatten moneylenders
SAGNIK DUTTA  NEW DELHI | 1st Apr 2012

he RBI move to cap loans given against gold by non-banking finance companies will hurt one of the most secure and easily available forms of loan availed by thousands of middle-class and poor customers across the country.

The RBI, in a recent circular, has put a cap of 60% on the loan-to-value ratio issued by non-banking finance companies (NBFC). This will reduce the amount of loan issued by a company against a deposit of gold. Also, the attempts to rein in NBFCs will force common people in semi-urban and rural areas without access to banking facilities, to depend on local moneylenders who charge exorbitant interest rates.

As per estimates released by CRISIL, business growth in the sector is likely to fall from 80%-85% per annum to 20%-25% per annum and the return of assets is expected to fall from 4.5% to 2.5%-3%.

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The RBI, in a recent circular, has put a cap of 60% on the loan-to-value ratio issued by NBFC. This will reduce the amount of loan issued by a company against a deposit of gold.

Unnikrishnan, managing director of NBFC Manappuram Finance Ltd, said, "The organised gold loan industry is of about Rs 1 lakh cr, of which NBFCs constitute Rs 50,000 cr. We issue about 24,000–30,000 loans on a daily basis in 2,900 branches across the country. We cater to the rural population in Kerala and Tamil Nadu. The RBI restrictions do not apply to the banking sector or to the moneylenders. The move is expected to lead to a slowdown of our growth. It will also help moneylenders charging exorbitant rates in capturing the market."

Commenting on the relative advantages of getting a gold loan from an NBFC, Unnikrishnan said, "Loans are more easily available against a gold deposit. The average size of a loan is Rs 40,000, but we issue loans for amounts as small as Rs 1,000. Prior to the RBI guidelines, we also had a higher loan-to-value ratio, compared to the other banks involved in such transactions." Manappuram Finance had been issuing loans at an average loan-to-value ratio of 90%.

Ravi Trivedi, a partner with KPMG, said, "The NBFCs dealing in gold loans were able to introduce some level of financial inclusion in areas where banking services have failed. This is also the most secure form of loan compared to other forms of loans such as loans issued against credit cards. This move is harsh and unjustified. The RBI has not stepped in adequately in the credit card market, where there is a higher risk of borrowers defaulting. Companies such as Muthoot Finance Ltd and Manappuram Finance Ltd are listed companies governed by proper governance structures which provide quick access to credit for the needy."

He added, "The RBI guidelines do not extend to banks that are dealing in gold loans or to the unorganised sector of moneylenders. By reining in NBFCs, the RBI will force people to go back to moneylenders who charge high rates of 35 %-40%."

 
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