Rating agency Crisil has reported that companies providing gold loans have remained largely unaffected by the Reserve Bank of India’s (RBI) recent directive and the decline in gold prices. In May 2024, the RBI instructed non-banking financial companies (NBFCs) to adhere to the Income Tax Act’s stipulation, limiting cash disbursements to Rs 20,000 and mandating digital transactions for larger amounts.
Following this circular, Crisil had anticipated a slowdown in gold loan disbursements, given that NBFCs previously relied on cash for up to 95% of these loans for faster processing. However, data from June 2024 showed a 12% increase in disbursements compared to the previous quarter, with growth reaching 23% when excluding one major player, according to Ajit Velonie, Senior Director at Crisil Ratings.
Crisil attributes this continued growth to the operational adaptability of NBFCs, regulatory compliance, and favorable gold prices. Despite a drop in gold prices following a budget cut in customs duty, the impact on gold-loan NBFCs has been minimal. Malvika Bhotika, Director at Crisil Ratings, noted that the current loan-to-value (LTV) ratio, estimated at 60-65% as of June 30, 2024, provides a sufficient buffer against fluctuations in gold prices. Crisil emphasizes the importance of closely monitoring LTV ratios to mitigate potential risks.
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