Reserve Bank of India (RBI) has tightened the norms for gold loan Non-banking financial companies (NBFCs). The central bank has said all non-banking finance companies that lend against gold collateral should maintain a loan-to-value ratio not exceeding 60 percent for loans granted against gold jewellery.
Manappuram Finance, Muthoot Finance and SKS Microfinance are some of the NBFCs that offer loans against gold in India. The current loan-to-value for Manappuram stands at 75 percent and for Muthoot at 62 percent, which is why their stocks have tanked 13 and 12 percent, respectively in morning trade.
Such NBFCs should not grant any advance against bullion/ primary gold and gold coins nd need to disclose the percentage of gold loans to their total assets in balance sheet, the RBI said. All NBFCs with such loans comprising 50 percent or more of their financial assets shall maintain a minimum tier-1 capital of 12 percent by 1 April, 2014, the RBI said.
India is the largest importer of gold and the RBI's move to tighten its noose around gold loan companies could discourage borrowing against gold.
Muthoot Finance touched a 52-week low of Rs 130.30 today and the stock is quoting at Rs 131.80, down 19.02 percent.
Manappuram Finance touched an intraday high of Rs 43.80 and an intraday low of Rs 38.55. At 09:17 hrs the share was quoting at Rs 39.10, down 13.69 percent.
SKS Microfinance, however, has not been so badly effected. The stock is down 1 percent at Rs 136.80.
The prudential norms have been imposed considering the rapid growth of such firms and nature of their business model which has increased dependence on public finance, the RBI said in a notification on its website.