The Reserve Bank of India (RBI) has directed non-banking financial institutions specialising in gold collateral-based lending to maintain a 'loan-to-value' (LTV) ratio not exceeding 60 per cent for loans granted against the collateral of gold jewellery.
Accordingly, NBFCs should disclose the percentage of such loans to their total assets in their balance sheets as a prudential measure.
NBFCs engaged in lending against gold jewellery, where such loans comprise 50 per cent or more of their financial assets, should maintain a minimum Tier l capital of 12 per cent by 1 April 2014.
NBFCS should not grant any advance against bullion / primary gold and gold coins.
''Given the rapid pace of their business growth and the nature of their business model, which has inherent concentration risk and is exposed to adverse movement of gold prices, as a prudential measure, it has been decided that all NBFCs shall disclose in their balance sheet the percentage of such loans to their total assets,'' RBI said in its directive.
RBI said the number of NBFCs predominantly engaged in lending against the collateral of gold jewellery have recorded significant growth in recent years, both in terms of size of their balance sheet and physical presence. This in turn, has led to their increased dependence on public funds, including bank finance and non-convertible debentures issued to retail investors.