KOCHI: The gold loan companies are genuinely concerned about the privilege the banks enjoy with regard to the higher loan to value (LTV) ratio as opposed to NBFCs.
While banks are allowed to go up to a loan-to-value (LTV) of 90 per cent, the gold loan companies licensed by the Reserve Bank of India (RBI), are not allowed to cross the 75 per cent limit.
The disparity in the loan-to-value (LTV) ratio limit between banks and non-banking financial companies (NBFCs) focused on gold loans, has been a long-standing concern.
Meeting RBI
Association of gold loan companies (AGLOC) is meeting with RBI officials this week to discuss this discrepancy in the loan-to-value ratio (LTV) and several other issues regarding gold loans.
AGLOC intends to argue that the 90 per cent LTV cap given to banks, as opposed to the 75 per cent limit for NBFCs, is a regulatory double standard that puts gold loan companies at a competitive disadvantage.
AGLOC will also seek relaxation from RBI on the need to maintain the LTV ratio on a daily basis, which turns out to be not only difficult, but to some extent, impossible too.
In fact, it was during the COVID period, RBI raised the LTV for banks to 90 per cent retaining the NBFC’s at 75 per cent. RBI never bothered to alter this even after the passage of a few years since then.
Level playing field
Gold loan companies have repeatedly raised this issue with the Reserve Bank of India (RBI), arguing that this unequal treatment impacts their ability to compete on an even playing field with banks.
VP Nandakumar, the MD and CEO of Manappuram Finance, expressed hope that RBI will take effective steps to establish a level-playing field in the gold loan space.
Tricky personal loans!
Interestingly, certain smart gold loan companies had ‘craftily devised’ ways to get around the 75 per cent LTV limit by issuing personal loans to the same borrowers on the strength of the same gold pledged for the gold loans.
On the one hand, the gold loan companies could easily exceed the 75 per cent limit through a different loan on a different head – personal loan/
On the other, the gold companies are able to treat the personal loan as an extension to the gold loan in effect though under a different name.
Talking to businessbenchmark.news, a top official with an established gold loan company, informed that a leading gold loan company had gone to the extent of displaying board at certain branches stating, “If you avail Rs 1 lakh gold loan, you are eligible for Rs1 one lakh personal loan too.”
However, the RBI, known for its strict enforcement of compliance in both ‘word and spirit,’ has taken steps to curb such gold loans being disbursed under the guise of personal loans.
