By Kshipra Petkar | Christina Titus
Reserve Bank of India Governor Sanjay Malhotra indicated some important changes in the final gold loan guidelines expected to be released on Monday. Borrowers who take loans of below Rs 2.5 lakh can expect major relief, in terms of no credit appraisal and a higher loan-to-value ratio from Rs 75% to 85%.
“In the draft regulation, there was nothing new. We had just consolidated older guidelines, and it was reiterated because it was seen that some regulated entities were not following the guidelines because there was no clarity,” Malhotra said.
In April, RBI came out with draft guidelines on lending using gold as a collateral. He said that the final guidelines will be released only after consulting with stakeholders.
“We will provide more clarity of the ownership documents, that if you do not have an invoice of the collateral then a self-declaration can be given. Secondly, loans which are less the Rs 2.5 lakhs, don’t need credit appraisal. We have also said that the end use monitoring is essential if you are lending to priority sector,” Malhotra said.
On loan-to-value, which was the biggest issue for gold loan lenders, the governor said that for smaller loans, which are less than Rs 2.5 lakhs, loan-to-value can be increased to 85% from the current 75%, but in this case the interest will also have to be included. He added that only for consumption loans, LTV guideline will be applicable.
“We hope that with the minimum risk, we are able to regulate the gold loan lending space effectively,” Malhotra said.
Jinay Gala, director-India Ratings Research said, “If it (gold loan norms) are eased, this would be a positive for the sector. And this will largely increase the ticket size. This would help the borrower mitigate current challenges, which they are facing in terms of availing loans. Largely, there is an unsecured lending, which is going slow.”
He added that since gold loan is a second product to have an end-consumer or end-borrower kind of a touchpoint. These moves will largely give a push on the deep rural side, where they want to increase end-consumer availability of credit largely through the secured way.
On Friday, the shares of the biggest gold loan lenders surged with shares of Muthoot Finance closed nearly 7% higher at Rs 2,454.80 and the shares of Manappuram Finance closed 5.6% higher at Rs. 247.80 on the National Stock Exchange.