Gold finance cos slip as RBI tightens gold loan norms

Gold finance companies such as Manappuram Finance and Muthoot Finance have plunged more than 14% each after the Reserve Bank of India (RBI) tightened rules for lending against gold by finance companies, saying the rapid growth in such loans in the past few years had increased risks to the banking system and retail investors.

Muthoot Finance has plunged 20% to Rs 130, its lifetime low, while Manappuram Finance has dipped 15% to Rs 38.55 on opening trades on the Bombay Stock Exchange.

The RBI on Wednesday released guidelines on the gold loan business of non-banking financial companies (NBFCs), prescribing a minimum Tier-I capital of 12% and loan-to-value (LTV) ratio of 60%. The central bank has also banned companies from lending against bullion, primary gold and gold coins, leaving just jewellery.

“NBFCs that have at least 50% of their assets in gold loans will have to maintain a minimum Tier-I capital of 12% by April 2014. The minimum capital adequacy ratio, however, has been left unchanged at 15%," the report suggests.