Manappuram Finance, the leading gold loan firm, has decided to recall a part of loan from its borrowers in order to meet the recent regulatory norm of having 60 per cent loan-to-value (LTV). The Reserve Bank of India (RBI), in a recent circular, said non-banking finance companies (NBFCs) primarily involved in gold finance cannot lend more than 60 per cent of the value of gold kept as collateral. All gold loan NBFCs have to adhere to the new norms by June 30.
The company has an overall loan book size of Rs 12,000 crore as of today. With an average recalling of five per cent, the company would have to bring back Rs 600 crore from customers before the June 30 deadline. Currently, Manappuram Finance has an average LTV of 65 per cent.
Confirming the development, I Unnikrishnan, managing director of the company told Business Standard, “We have started sending letters to our customers to recall money over 60 per cent of LTV immediately.”
“We know that the recall of extra money is an aberration for our customers. But, we do not have an option but to adhere to RBI guidelines,” said Unnikrishnan.
According to him, 80 per cent of their customer base is rigid who would not mind refunding over 60 per cent of loan amount. “Hence, it would not be a problem for us to bring excessive money back to the company,” he added. Terming RBI’s decision a big blow, Unnikrishnan said, “It would hit the overall business of companies like ours badly. Growth would also stagnate. But, it will also bring consolidation to the industry where all big and small companies even from irrelevant business were mushrooming in the past few months. Most companies that were planning to enter into this business would abstain.” Interestingly, RBI has not set any such cap on gold loans for banks.
RBI had recently banned the company from accepting public deposits as it is a violation of rules governing its licence to function as a lender. The regulator also directed the company not to even renew those deposits which mature.
“RBI has stated that acceptance of deposits either by Manappuram Finance or by Manappuram Agro Farms is punishable with imprisonment and has cautioned members of public that those who deposit money with Manappuram Finance or MAGRO, will do so at their own risk,” RBI had said.