FinMin seeks exemption for small-ticket borrowers

The Union finance ministry has suggested exempting gold loans below ₹2 lakh from the Reserve Bank of India's (RBI's) proposed directions on lending against the yellow metal as collateral.

- ANUPREKSHA JAIN & HARSH KUMAR

The ministry has said the RBI's directions have been examined by the Department of Financial Services (DFS), under Union Finance Minister Nirmala Sitharaman's guidance.

"The DFS has given suggestions to the RBI to ensure that the requirements of small gold loan borrowers are not adversely affected," the department said in an official statement.

The DFS suggestion will benefit 60-70 per cent of borrowers.

According to industry estimates, the average size of gold loans is ₹1.1 lakh-1.2 lakh. These are short-term loans, for which the maximum repayment tenure is 24 months. On average, customers pay back in seven-eight months.

Some non-banking financial companies (NBFCs) like Muthoot Finance, Manappuram Finance and IIFL Finance are major players in this business. Gold loans of NBFCs are around ₹3 trillion.

Shares of Muthoot Finance, largest gold-loan NBFC, jumped 7.29 per cent on the BSE on Friday to end at ₹2,216.35 apiece. Manappuram and IIFL shares also gained even as the Sensex declined.