Gold financing firms slide as RBI tightens rules on lending against gold jewellery

Shares of three gold financing firms lost 1.57% to 6.42% at 15:13 IST on BSE after the Reserve Bank of India tightened rules for finance companies which lend against gold.

Muthoot Finance (down 6.42%), Manappuram Finance (down 4.62%) and Magma Fincorp (down 1.57%) edged lower.

Meanwhile, the BSE Sensex was up 42.16 points, or 0.21%, to 19,784.63

Muthoot Finance outperformed the market over the past one month till 16 September 2013, rising 18.77% compared with the Sensex's 6.15% rise. The scrip, however, underperformed the market in past one quarter, sliding 8.1% as against Sensex's 2.94% rise.

Manappuram Finance outperformed the market over the past one month till 16 September 2013, rising 19.93% compared with the Sensex's 6.15% rise. The scrip had also outperformed the market in past one quarter, advancing 11.3% as against Sensex's 2.94% rise.

The Reserve Bank of India (RBI) tightened rules for finance companies which lend against gold. The RBI on Monday, 16 September 2013, said lenders need to value the pledged gold at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association to arrive at the loan-to-value ratio. The ratio would remain at 60% for loans against jewellery. Currently, there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary and opaque, the central bank said in a notification issued late on Monday, 16 September 2013.

The central bank also streamlined the process by which lenders auction gold when a borrower defaults, saying lenders need to declare a reserve price for the pledged ornaments. Lenders would also need RBI approval to open branches exceeding 1,000. No new ones would be allowed without adequate storage facility for gold. Unbridled growth may not be in the overall interests of the concerned NBFC or the sector and there is a need for consolidation of the existing network, the central bank said.

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