RBI's draft circular seeks to standardise gold loan norms

The Reserve Bank of India (RBI) on Wednesday came out with comprehensive draft guidelines to harmonise and regulate gold loans across all financial entities, including putting a cap of 75 per cent on loan-to-value (LTV) ratio.

- AATHIRA VARIER

The draft guidelines also aim to address concerns related to certain lending practices, provide clarity on specific aspects, and strengthen the conduct-related standards in the sector.

Shares of gold loan NBFCs ended in the red on Wednesday. At closing, shares of Muthoot Finance ended 7 per cent down; IIFL Finance was down 2.5 per cent while shares of Manappuram Finance closed 1.86 per cent down.

In the draft circular, the RBI stated that norms for lending against gold collateral must be incorporated into the credit/risk management policy of lenders. The policy should include appropriate single borrower limits, sectoral limits for the portfolio of loans against gold collateral, mechanisms to ensure proper end-use of funds, loan-to-value (LTV) ratio, valuation standards and norms, as well as standards for gold purity.