Gold finance firms fall on RBI diktat

Shares of gold finance firms slumped by up to 20% on the bourses on Thursday, a day after the Reserve Bank of India (RBI) tightened rules for lending against gold by non-banking finance companies (NBFCs). HT reports. Losing shine

Shares of gold finance firms slumped by up to 20% on the bourses on Thursday, a day after the Reserve Bank of India (RBI) tightened rules for lending against gold by non-banking finance companies (NBFCs).

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The RBI on Wednesday said that gold finance companies cannot lend more than 60% of the value of gold jewellery (loan to value or LTV) and that companies with half their assets in gold should have a minimum equity capital, or tier-I capital, of 12% by April 2014.Shares of gold finance firms. Till now consumers were able to get loans around 70% of the value.

NBFCs’ lending against gold have grown rapidly in the last few years because of a sharp rise in the prices of the yellow metal which borrowing.

While shares of Muthoot Finance fell 10% on the BSE on Thursday, shares of Manappuram Finance plunged 19%.

“Restricting the LTV to 60% would mean that these companies might have to forego some amount of growth,” said Sampath Kumar, senior research analyst, IIFL Institutional Equities. “The average LTVs at the time of granting the loan is much higher than 60%. So, there should be some pullback on the growth side.”

“We feel that RBI has taken these steps in order to regulate the risk especially with respect to new entrants to the sector, who may not be aware of the nuances of the business and also to strengthen the existing firms,” said George Alexander Muthoot, MD, Muthoot Finance.