How RBI steps on lending against gold affects NBFCs
Now, you have to furnish your PAN for availing of any loan above Rs 5 lakh from gold
loan companies. Besides, any loan above Rs 1 lakh will be disbursed only
through a cheque.
Getting loan against gold will now become tougher with the Reserve Bank of India (RBI) further tightening rules for such disbursals.
Now, you have to furnish your PAN (Permanent Account Number issued by the tax department) for availing of any loan above Rs 5 lakh from gold loan companies (those with above 50% of gold loans in their total loan portfolio). Besides, any loan above Rs 1 lakh will be disbursed only through a cheque.
The RBI has also asked gold loan companies to stop issuing misleading advertisements such as availability of loans in two-three minutes.
The central bank has also laid down rules for valuation of gold pledged for loan. The gold will now be valued at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association. At present, the valuation of gold accepted as collateral is arbitrary and opaque.
The loan-to-value ratio, or the proportion of loan amount to the valuation of collateral, would remain at 60% for loans against jewellery.
The RBI has also asked gold loan companies to seek prior approval for opening branches exceeding 1,000. It has also asked them to verify and maintain records of jewellery ownership if total gold pledged by the customer is more than 20 grams.
At present, gold loan companies rely on self-declaration by customers for ownership verification. It has also asked gold loan companies to maintain proper infrastructure for storage of gold.
Analysts say if the RBI insists on any other documents, gold loan companies may lose market share to the unorganised sector. According to them, the guidelines are not clear on documents required for this purpose.
A Religare Institutional Research report says that the new norms, especially insistence on PAN and disbursal through cheques, could hurt the segment. However, norms related to auction process, branch opening and gold storage will have a limited impact.
After the announcement, share prices of non-banking financial companies Muthoot Finance and Manappuram Finance declined 8.2% and 4.6% to Rs 103.60 and Rs 15.5 on 17 September 2013 from the previous day, respectively.
"The new norms can put further pressure on stock prices of Manappuram Finance and Muthoot Finance," says Nithin Kamath, founder and chief executive officer, Zerodha, an online brokerage.
In another announcement on 17 September 2013, the government increased customs duty on gold and silver jewellery from 10% to 15%, a move aimed more at protecting the domestic jewellery industry rather than stemming overseas purchases to narrow the current account deficit.
"This is unlikely to have a significant impact since jewellery is only a small part of total imports. However, this could be good news for the local industry," says Kamath.
"The increase in duty on gold jewellery is positive for the Indian economy. It will protect the interests of jewellers and reduce the country's current account deficit. The step will also support the weak rupee. However, it will not hurt gold prices in India," says Sugandha Sachdeva, assistant vice president and incharge, metals, energy and currency research, Religare Securities.
According to the World Gold Council, India imported around 338 tonnes gold during the April-June quarter. Gold imports are seen as a hindrance in the government's attempt to lower the current account deficit and support the rupee.
The country's current account deficit in 2012-13 was 4.8% of its gross domestic product.
Now, you have to furnish your PAN (Permanent Account Number issued by the tax department) for availing of any loan above Rs 5 lakh from gold loan companies (those with above 50% of gold loans in their total loan portfolio). Besides, any loan above Rs 1 lakh will be disbursed only through a cheque.
The RBI has also asked gold loan companies to stop issuing misleading advertisements such as availability of loans in two-three minutes.
The central bank has also laid down rules for valuation of gold pledged for loan. The gold will now be valued at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association. At present, the valuation of gold accepted as collateral is arbitrary and opaque.
The loan-to-value ratio, or the proportion of loan amount to the valuation of collateral, would remain at 60% for loans against jewellery.
The RBI has also asked gold loan companies to seek prior approval for opening branches exceeding 1,000. It has also asked them to verify and maintain records of jewellery ownership if total gold pledged by the customer is more than 20 grams.
At present, gold loan companies rely on self-declaration by customers for ownership verification. It has also asked gold loan companies to maintain proper infrastructure for storage of gold.
Analysts say if the RBI insists on any other documents, gold loan companies may lose market share to the unorganised sector. According to them, the guidelines are not clear on documents required for this purpose.
A Religare Institutional Research report says that the new norms, especially insistence on PAN and disbursal through cheques, could hurt the segment. However, norms related to auction process, branch opening and gold storage will have a limited impact.
After the announcement, share prices of non-banking financial companies Muthoot Finance and Manappuram Finance declined 8.2% and 4.6% to Rs 103.60 and Rs 15.5 on 17 September 2013 from the previous day, respectively.
"The new norms can put further pressure on stock prices of Manappuram Finance and Muthoot Finance," says Nithin Kamath, founder and chief executive officer, Zerodha, an online brokerage.
In another announcement on 17 September 2013, the government increased customs duty on gold and silver jewellery from 10% to 15%, a move aimed more at protecting the domestic jewellery industry rather than stemming overseas purchases to narrow the current account deficit.
"This is unlikely to have a significant impact since jewellery is only a small part of total imports. However, this could be good news for the local industry," says Kamath.
"The increase in duty on gold jewellery is positive for the Indian economy. It will protect the interests of jewellers and reduce the country's current account deficit. The step will also support the weak rupee. However, it will not hurt gold prices in India," says Sugandha Sachdeva, assistant vice president and incharge, metals, energy and currency research, Religare Securities.
According to the World Gold Council, India imported around 338 tonnes gold during the April-June quarter. Gold imports are seen as a hindrance in the government's attempt to lower the current account deficit and support the rupee.
The country's current account deficit in 2012-13 was 4.8% of its gross domestic product.
