Banks reduce exposure to gold loan firms: RBI | india | Hindustan Times
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Banks reduce exposure to gold loan firms: RBI

india Updated: Apr 17, 2012 22:33 IST
HT Correspondent
HT Correspondent
Hindustan Times
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The Reserve Bank of India (RBI) on Tuesday instructed commercial banks to reduce their exposure to gold loan companies to 7.5% of their capital funds from the existing 10%.

This will directly impact the gold loan companies such as Muthoot Finance and Manappuram Finance, which would get lesser funding. The RBI has also set up a working group to suggest ways to deal with the issue.

“Banks should reduce their regulatory exposure ceiling in a single NBCFC, having gold loans to the extent of 50% or more of its total financial assets, from the existing 10% to 7.5% of bank's capital funds,” RBI governor D Subbarao said. “The gold loans have been growing rapidly and there was a concentration risk. It was not as if the business model of a particular company or the activities of a particular company has motivated the step.”

The announcement made on Tuesday comes a month after the RBI directed the NBFCs not to sanction loans exceeding 60% of the value of the jewellery, against the industry practice of giving loans to upto 80%-90% of the jewellery value. While the industry analysts say that these steps would moderate the growth of the NBFCs in the space, Muthoot, the country’s biggest player in gold loan said there would not be much impact.

“We have borrowed Rs 10,000 crore from bank and have enough headroom and this (bank’s cutting exposure) may not impact us much,” said Oomen K Mammen, CFO Muthoot Finance. “We have fairly diversified sources of funding including internal accrual, money market etc.”