RBI move to slow down gold loan growth, lead to uptick in delinquencies: Crisil

Mumbai: The Reserve Bank's recent notification asking financiers to review their gold loan practices can slow down loan growth in the near-term and lead to an uptick in asset quality stress, a domestic rating agency said on Tuesday. "Potentially, this could impact gold loan disbursements during the transition phase and curb growth in the business," the note by Crisil said.

It can be noted that a few weeks ago, RBI had flagged certain irregular practices in loan against gold jewellery and asked lenders to comprehensively review their policies, processes and practices to identify gaps and initiate remedial measures in a time-bound manner.

The notification had flagged deficiencies in the monitoring of the loan-to-value (LTV) ratio, asset classification norms for overdue loan accounts, and inadequate due-diligence in monitoring the end-use of gold loans.


Reported loan delinquencies may see some uptick as entities revisit their current non-performing asset (NPA) recognition norms and/or policies and procedures for disbursing loans to existing customers, the agency said.

However, it was quick to add that in the gold loan business, credit cost is the more appropriate indicator of asset quality and overall credit losses are seen under control because of Indians' emotional attachment to the precious metal.

Ability of lenders to maintain conservative LTV as well as to conduct timely auctions and recover dues also supports low ultimate credit losses, it added.

The agency's director Malvika Bhotika said the regulations aim to ensure consistent application of guidelines in the gold-loan space and protect borrower interest.

"Adherence is likely to impact disbursements over the next few quarters and taper gold loan growth both for banks and NBFCs," Bhotika said.

The senior official added that NBFCs are expected to adapt to the regulatory measures impacting their business within a reasonable timeframe, just as in the recent past, when limits were placed on cash disbursals.