Non-bank lenders approach RBI to increase LTV on gold loans to 90%

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KOLKATA: Non-bank lenders specializing in lending against gold have approached the Reserve Bank of India, seeking to increase the authorized loan-to-value (LTV) to 90% of gold pledged by customers from the existing 75% , as the regulator has done for regular commercial banks.

Businesses believe that if their LTV is increased to the same level as banks, they will be able to meet the financial needs of a wider segment of low- and middle-income customers during this hardening period.

Confirming the case, Association of Gold Loan Companies (AGLOC) Secretary Thomas George Muthoot said: “AGLOC members only deal in gold lending and we have much better penetration than the banks. Gold lending is one of the many activities of banks. Therefore, we should have a level playing field and our LTV should also be increased from 75% to 90%. We have written to the RBI but have not yet heard from them.

About 98% of non-bank lenders in India are in the lending business only and their operations are spreading faster than commercial banks in inland villages, he said.

A higher LTV, combined with an increase in gold prices, will allow small entrepreneurs, traders and households to obtain more loans against gold.

As gold lenders seek a level playing field with banks, they have also warned of risks from the current volatility in gold prices. Muthoot Fincorp Chairman Thomas John Muthoot pointed out that gold prices, after a sudden spike, fell on August 11 to Rs 52,000 from Rs 57,000 for 10g.

“During this period of high volatility, the question is how will gold prices behave in the short and long term? Although no one can predict the future, most analysts believe that even if gold prices gold will continue to remain bullish over the long term, there will be periodic corrections, therefore gold will continue to remain highly volatile until the macroeconomic situation stabilizes globally, prompting traders and lenders to maintain a healthy margin rate to avoid massive margin calls and customer defaults,” he said.

“While we were upset and unhappy in 2013 when the RBI lowered the LTV allowed and regulated the maximum lending rates for gold lending by NBFCs, in hindsight we believe this was the best thing to do. do,” he said. “We lend against a commodity considered a safe haven investment. But this largely depends on various factors ranging from the global economic situation, the movement of the dollar and many other intangible factors and so it is important that we keep sufficient cushion. It would be very short-term thinking to allow banks to lend up to 90% LTV, as this requires close monitoring of price movements.

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