Gold loan body asks members to reduce lending rates

Says demand for gold loan remains strong despite lower loan-to-value ratio

The Association of Gold Loan Companies on Monday said it had advised members to reduce their maximum lending rate following the decline in the price of the yellow metal.

The industry body of gold loan companies will continue to monitor price movements and suggest its members revise the maximum rate of loan per gramme of gold accordingly. It, however, added despite the steep fall in prices and reduction in the loan-to-value ratio, demand for gold loans continue to remain strong.

“Members confirm loan demand continues to be robust in spite of reduction in the amount lent per gramme of gold. It is also noticed there is a regular redemption of earlier loans sanctioned at higher amount per gramme of gold,” it said.

The body felt 15-20 per cent fluctuation in gold prices might not affect credit quality significantly, as such variations are already factored in the business model of gold loan companies.

“The companies are majorly lending against household jewellery, where the impact of such temporary fluctuations on the business model are minimum. These loans are of short duration, of three to six months. Compared to the disbursements, non-performing asset levels are low,” said George Alexander Muthoot, president and managing director of Muthoot Finance.

“The body has asked member companies to review its existing collection mechanism and further strengthen it. There should be regular monitoring of overdue and high loan-to-value loan accounts. Companies should auction defaulted and abandoned loan accounts with due compliance to fair practice code stipulated by the Reserve Bank of India,” he added.

According to the body, the scope of delinquencies are limited as most of the gold loan companies have majority of their branches in semi-urban and rural areas, and the ticket size of loans are mostly below Rs 1,00,000. Over the past six months, gold price has fallen almost 18 per cent.