Gold loan NBFCs welcome RBI move to raise LTV

Non-bank entities lending against gold today welcomed Reserve Bank's move to raise loan amount against pledged gold, saying the move will facilitate financial inclusion, provide a level playing field in their favour and deliver more value to customer's assets.
The apex bank yesterday allowed NBFCs (non-banking finance companies) to lend up to 75 per cent of the value of the yellow metal from 60 per cent at present.
The hike in Loan-To-Value (LTV) - which refers to the amount of loan a borrower gets against the pledged gold - has been done in view of the moderation in the growth of gold loan portfolios of NBFCs in the recent past.

"This move by the apex regulatory body will help the cause of financial inclusion and is an acknowledgement of the growing significance of gold-financing NBFCs in fuelling micro -economies in the country," said M G George Muthoot, Chairman of Muthoot Finance, India's largest gold NBFC.
Manappuram Finance Executive Director and Deputy Chief Executive I Unnikrishnan said, "the move shows that the RBI recognises the need to monetise idle gold and also to provide a level playing field vis-a-vis banks."
The gold finance companies said the move will help customers get maximum value for their assets.

"Many customers had moved to unorganised sector because of lower LTV and now they are expected to come back to the organised sector," said George Alexander Muthoot, managings director, Muthoot Finance.

The RBI said the value of jewellery for the purpose of determining the maximum permissible loan amount will be only the intrinsic value of the gold content therein and no other cost elements like making charges should be added while doing diligence on a loan.
The intrinsic value is arrived in a particular way suggested by the RBI.
RBI clarified that the need to give a certificate on the purity of gold cannot be dispensed with. The certified purity should be applied for determining the maximum permissible loan and also set the reserve price for auction, the central bank said.