Gold loan companies protest to RBI Fearing a rapid loss in business to banks, gold loan companies have urged the Reserve Bank of India (RBI) to provide a level playing field. In a recent meeting with RBI officials, gold loan companies emphasised that the latest move by the banking sector regulator favours banks lending against gold jewellery at the cost of private sector players in this business. RBI’s move is set to cap branch expansion of gold loan companies and prove an obstacle in bringing out the idle gold in the country, they argued. “Gold loan non-banking finance companies (NBFCs) are doing a socially useful function and that provides a strong rationale for careful regulation of the activities” is what the K U B Rao committee’s recent final report said on the subject. The report had a detailed analysis with the final recommendations, which not only clarified the negative air against gold loan NBFCs but cleared a roadmap on how to shape the sector for long-term growth. “RBI’s latest move partially contrasts with the Rao committee’s recommendations. While the committee suggested growth measures for gold loan NBFCs, RBI has for the last 18 months taken several hard measures to cap their growth. In addition to lower LTV (loan to value), stringent norms of KYC (know your customer) and on cheque payment over Rs 100,000 restrict the growth of gold loan companies,” said Arun Kejriwal, founder of Kejriwal Research and Investment Services. Rao had recommended cheque payment only of amounts above Rs 500,000. A person wanting a gold loan is in very urgent need of funds. Paying him by cheque would extend his waiting period by two more days before the actual monetising of gold. He or she would prefer to go to moneylenders or pawn brokers, who would address his need upfront. And, some banks in the south do not insist on an account for customers. All this would dampen matters for gold loan companies. This comes even as the central bank has been vocal about financial inclusion and bringing about inclusive growth. One of its key criteria in issuing the new banking licenses is that the entity should have strong presence in the rural hinterland. RBI has continued its cap on LTV to 60 per cent for gold loan NBFCs, despite the Rao committee recommending its extension to 75 per cent. For banks, the LTV continues at 75 per cent and sometimes goes to 80 per cent. The loss in business for NBFCs could go to the unorganised market of pawn brokers and moneylenders, on which the government or RBI does not have control. Extending favourable room to gold loan companies would help continue expanding the organised gold loan market, plus helping the government in monetising the country’s idle gold holdings. RBI has asked banks to help monetise idle gold by raising their gold loan portfolio but continues to restrict gold loan NBFCs from expanding their presence, say critics.
Posted on: Wed, 09 Oct 2013 01:22:55 +0000
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