Gold loan non-banking finance companies (NBFCs) are unlikely to be significantly impacted by the Reserve Bank of India's new guidelines allowing banks to lend up to 90 per cent of the gold value as prudent lending practices may demand lenders to be cautious and keep a cushion to provide for any material correction in the price of collaterals, India Ratings and Research (Ind-Ra) has said.
The agency believes lending cautiously for banks is especially important in the light of the recent rapid rise in gold prices (39 per cent over April 1 to August 11) which increases the probability of pullback.
Given that gold loan tenors range mostly from three months to 12 months and considering that the loan-to-value (LTV) norms have been relaxed till March 2021, if the aggressive exposures were to be offered, a significant majority of loan portfolio of the lenders may move to higher LTVs, exposing them to price volatility.
Historically, gold has been a stable asset class. However, there could be a short period of heightened volatility in the medium term.
While there remains a fair bit of competition among banks, gold loan NBFCs and moneylenders, they all also have their own niche and hence attract different customer segments.
However, banks have a clear advantage in terms of lending rates. Also, moneylenders have been offering much higher LTVs and other conveniences but that has not stifled the business growth of NBFCs or for that matter banks.
Ind-Ra said even though the gold loan LTV regulations have been relaxed, the additional quantum that a bank can lend may not be significantly higher than that of NBFCs, given the LTV norms for banks are for the entire duration of the loan as against those for NBFCs that are applicable only at the time of inception.
Hence, LTV will need to factor in the interest component while calculating customer eligibility by the banks. (ANI)