Withdrawal of PSL benefit: Cost of funds for gold loan cos to go up

MUMBAI: Ratings agency, Crisil, today said the Reserve Bank's move to do away with priority sector lending ( PSL) benefit on gold loans will impact the growth of gold loan companies as their cost of borrowing is expected to shoot-up by upto two per cent.

"Removal of PSL benefit will lead to an increase in the cost of bank funding for gold loan players. These entities will try to access funds from capital markets more frequently to mitigate impact," Crisil Ratings Head, Rupali Shanker, said.

RBI had last week revised its PSL norms under which a bank lends at lower interest rates to borrower institutions engaged in socially uplifting areas. The RBI said loans to non-bank lenders who on-lend to individuals against gold as a security cannot be classified as PSL for agriculture.

Courtesy the PSL benefit, gold loan companies could maintain a low cost of borrowings at 8-10.5 per cent and the policy change "diminishes" the attractiveness for banks to lend to this sector, Crisil said.