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RBI gives banks 6 months to lower exposure to gold NBFCs

The Reserve Bank of India (RBI) has asked banks to reduce exposure to non-banking financial companies (NBFCs), which give loan against gold, to 7.5% from the existing 10% of their capital funds within six months.

india Updated: May 20, 2012 20:55 IST
HT Correspondent
HT Correspondent
Hindustan Times

The Reserve Bank of India (RBI) has asked banks to reduce exposure to non-banking financial companies (NBFCs), which give loan against gold, to 7.5% from the existing 10% of their capital funds within six months.

“Banks which are currently having exposure to such NBFCs in excess of the regulatory ceiling would be required to reduce their exposure within the prescribed limit at the earliest, but not later than six months from the date of this circular,” said the RBI in a circular. “However, the above exposure ceiling may go up by 5%, i.e., up to 12.5% of banks’ capital funds if the additional exposure is on account of funds lent to the infrastructure sector.”

The RBI had taken measures such as limiting loan-to-value (LTV) ratio to 60% for gold loans and mandating a minimum tier 1 capital of 12% by April 1, 2014, besides restricting NBFCs to grant any loan against bullion/primary gold and gold coins.

An LTV of 60% means that a borrower will have to give gold worth Rs 100 to get a loan of Rs 60.

First Published: May 20, 2012 20:53 IST