Recently, the Reserve Bank of India (RBI) set up of a Regulations Review Authority (RRA 2.0) to review its regulations internally, and in consultation with other stakeholders. The RRA will focus on streamlining regulatory instructions and reducing the compliance burden of regulated entities by simplifying procedures and reducing reporting requirements. Accordingly, the RBI invited leading industry bodies such as CII, FICCI and ASSOCHAM to offer their suggestions following which these bodies called upon their members to list out such issues.
At Manappuram, we responded by pointing to a long-standing concern, the fact that gold loan-focused NBFCs with more than 1,000 branches still require prior approval from the RBI before opening a new branch anywhere. The rule came into force sometime in FY 2012-13, a time when there was real concern among policymakers about rising gold imports and the widening current account deficit (CAD). The feeling then was that gold loan NBFCs were somehow contributing to the import surge. That impression was later dispelled by the RBI itself when the working group it had appointed to study all these issues related to gold and gold loans (the K.U.B. Rao committee) submitted its report in 2013. The Rao Committee report categorically stated that “there is also a need to increase monetization of idle gold stocks in the economy for productive purposes. Encouraging loans against the collateral of gold for productive purposes may be a way to do this.” It observed that the financial performance of the gold loans NBFCs and their borrowings from the banking system have no immediate systemic implications for domestic financial stability arising from the interconnectedness of gold loans NBFCs and the banking system.
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