About Gold Loan New Norms
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To control in loads of development of gold loan, the Reserve Bank of India (RBI), instructed non-banking financial companies (NBFC) to control the lender loan dimension to 60 % of the value of gold loan.
Gold loans are often applied for by those people who need a Personal Loan or a Business Loan. The instant finance requirement maybe because they need the finance for some emergency. The Reserve Bank of India, realising the potential of the market and also the possibility of exploitation of the customers naivety, has decided to control the amount up to which the banks and NBFCs can lend. This means that if the value of gold is Rs 10 lakh, NBFCs can increase only Rs 6 lakh as gold loan. Since there are no such constraints until date, many companies extended up to 90-95 % of the value of gold as gold loans.
The RBI also prohibited them from approving advances against bullion/primary gold and coins. It fixed that NBFCs, for whom these Loans make up 50 % or more of economic resources, should maintain a minimum Level l capital of 12 % by May 1, 2014. To keep a tab on their development, the RBI asked them to reveal the percentage of such gold loan to their total resources.
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In a notice released to all NBFCs these days, the RBI mentioned the move has been required given the rapid pace of company development and the nature of their company, which has built in attention risk and is exposed to negative movement of gold costs.
“NBFCs that are primarily engaged in lending against the security of gold jewelry have documented significant development these days both in terms of dimension their accounts. This results to their increased dependency on public funds including economical institution and non-convertible debentures released to retail traders,” the RBI said.
With gold gaining 36 % in value this year, the gold loan company is approximated to have lead Rs 75,000 Crore during the year. The sorted gold loan market in Native Indian was approximated at between Rs 35,000 Crore and Rs 40,000 Crore by 2010-end with a yearly complicated development of approximately 40 % during economical 2002 to economical 2010. If costs crash by the same edge or even more this year, the impact on such NBFCs and the economical sector can be severe as these NBFCs themselves are big debtors. As opposed to banks, gold loan companies were enjoying a free run with lax rules, increasing the specter of serious wide spread risks.
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