Preparation for changes in rules – Preparation for changes in rules

The Reserve Bank of India (RBI) on Wednesday issued a circular for loan companies by mortgaging gold. The purpose of this circular is to prepare a favorable regulatory structure for such loans among various lenders. Its purpose is to remove concerns related to special borrowings, clarify the situation in terms of special circumstances and strengthen the standards in the region.

In the circular, RBI has said that the standards for borrowing gold should be included in the credit/risk management policy of lenders. The policy must include the appropriate single borrower range, regional limitations for the portfolio of loan on mortgaged gold, mechanisms to ensure proper use of funds, loan-to-valeu (LTV) ratio, evaluation standard, as well as standard of gold purity.

According to RBI, lenders are required to set a limit on safe loan portfolio as eligible gold collateral as the ratio of their total loans and advances. This range will be reviewed from time to time, focus on factors such as collection efficiency, auction based recovery performance, adequate economic capital.

In addition, lenders must set a limit on the amount of loan for a single borrower in terms of eligible gold collateral, clarify the difference between income creation and consumption objective. The RBI said that this limit should be implemented in a continuous and non-discriminatory manner.
According to a private banker, proposed standard are useful for banks. Gold loan NBFC shares declined on Wednesday. Muthoot Finance shares fell 7 per cent, IIFL finance 2.5 per cent, while Manappuram Finance closed with 1.86 per cent weakness.

First Published – April 9, 2025 | 11:51 pm IST