“The regulator’s diktat is obvious, it needs lenders to look at the cost capability of debtors and never solely depend on the collateral,” mentioned a senior banking official. “It’s also sad with permitting rollover of such loans with half cost, which might result in some delinquencies when repayments come up. We at the moment are structuring month-to-month cost choices for gold loans.”
In a round on September 30, the regulator identified irregularities in granting loans towards gold ornaments and jewelry. This was after the central financial institution discovered points within the sourcing of gold loans, valuation, due diligence, end-use monitoring, public sale transparency, loan-to-value (LTV) ratio monitoring, and the appliance of threat weights. The regulator additionally discovered that rolling over gold loans with solely half cost was a poor follow.
As a follow, gold mortgage lenders supply a bullet compensation gold mortgage possibility, the place the borrower can repay the whole quantity on the finish of the mortgage tenure. They needn’t make repayments as per any EMI schedule. Another choice is to make partial repayments as and when funds can be found with the borrower. Right here, the borrower pays off the whole principal and curiosity quantity earlier than the tip of the mortgage tenure.
The round comes towards the backdrop of excessive development within the gold mortgage portfolio of each banks and NBFCs over the previous few quarters. As per Crisil, retail loans towards gold jewelry elevated by 37% for banks between April and August whilst gold costs rose. For gold-loan-focused NBFCs, development in belongings below administration within the first quarter of FY25 was 11%.
“The sector faces underlying challenges as the continual build-up of leverage raises considerations about debtors’ capacity to service debt, particularly given restricted visibility into their money flows or for that matter the tip use of funds,” mentioned Prakash Agarwal, companion at consulting agency Gefion Capital. “A possible correction in gold costs might pose important dangers, as declining collateral values would possibly create refinancing challenges and pressure compensation capability. Lenders should stay vigilant, balancing development with prudent threat administration to mitigate potential vulnerabilities.”As of September 30, banks had disbursed Rs 1.4 lakh crore as jewelry loans, a 51% rise, up from 14.6% reported within the year-ago interval.Gold loans have witnessed strong development in current quarters, supported by a big rise in gold costs because it enabled further top-ups on current collateral. The challenges across the availability of unsecured and microfinance loans additionally pushed debtors to avail of gold loans. Nonetheless, RBI’s strictures on inconsistencies recognized throughout a current assessment and feedback on strengthening the controls might throttle development to some extent.
