What will be the impact of the RBI's cash disbursal limit on gold loan?

The Reserve Bank of India (RBI) has recently issued an advisory to non-banking financial companies (NBFCs) to strictly adhere to the Rs 20,000 cash disbursal limit for gold loans. This move is aimed at promoting transparency and preventing potential disputes in the gold loan segment. 

 

How will this move impact consumers?

 

Gold loan consumers, who traditionally relied on cash transactions for loan disbursements, are likely to experience a shift towards digital payment methods. With a significant portion of gold loans already processed through paperless and direct transfer methods, consumers are expected to adapt to the new guidelines with relative ease.

 

The push for increased transparency and reduced cash transactions aligns well with the RBI’s objectives, promoting a more secure and compliant lending environment.

 

Talking to Business Standard Shaji Varghese, CEO of Muthoot FinCorp Limited said, “RBI’s directive on disbursing not more than Rs 20,000 in cash for gold loans is an instruction to all NBFCs across and overall sector to reorganise the gold loan sector. Limits on cash disbursement is not a new direction, but a clarity on reduced limit of Rs 20000. With the UPI and bank account penetration across the country only increasing since the last few years, this will not be an impediment for customers to avail gold loans. 

 

George Alexander Muthoot, MD, Muthoot Finance said, “Although some rural customers may face minor inconvenience and opt for unorganised financial lenders, we do not see this norm as a challenge. We have robust systems and processes in place and we support the RBI’s move towards more financial transparency through banking channels. I am confident this will not impact our business and volumes.”

 

How will this move impact business?

 

For gold loan NBFCs, the directive may lead to notable changes in their loan disbursement processes, especially considering the composition of their loan portfolios.

 

The need for enhanced compliance measures could result in increased operational costs across the sector, impacting the break-even assets under management (AUM) required for new branches.

 

Standardising the disbursal process among gold lenders is likely to mitigate internal policy variability and comply with rising regulatory thresholds.

 

Talking to Business Standard Jyoti Prakash Gadia, Managing Director at Resurgent India said, “The restrictions on the cash disbursals in gold loan schemes is a step towards maintaining stability in the liquidity position in the economy about which RBI as a regulator has shown concern, with the growing portfolio of the banks and NBFCs.”

 

“With the growth of fintechs as service providers in the retail loan domain, the compliance of the prescribed norms and observance of general prudence were emerging as issues. The maintenance of loan to value/margin on loan with gold as collateral, the valuation of the security and disposal of security in case of default are essential requirements which were seen to be diluted and disbursements by way of cash was further leading to question about the end use of funds. This regulation will enable the banks and NBFCs to have a healthy portfolio of gold loans with lesser likelihood of default,” he said.