The price of gold correction to hit banks very more than NBFCs

The rate of correction can not be hit by the NBFCs lending against in the terms whole of the asset quality very much as this will also hit banks because all the banks have lent at a little bit higher LTVs, according to the rating firm Crisil NSE 0.26%. NBFCs are very much agile in monetizing the collateral as well as hence have very fewer credit costs.


Apart from that regular rate collection over the last few years, they have already ensured that disbursement is loan-to-value. The rate of gold has slipped over 10 percent over the last 6 months. For the NBFCs, the average portfolio LTV last year was near 63-67%, whenever average LTV on the incremental disbursements in last October-December 2020.


For every bank, however, incremental-disbursement LTV was a very little bit higher nearby 78-82% because they were very much more aggressive than the NBFCs in lending against the gold during the previous fiscal. The growth is very much their book came during the third quarter of the last fiscal, whenever the price of gold was soaring.


The gold surged even as the lending to different types of segments was also affected by the asset-quality concerns. In the 11 months, loans against the gold grew nearly 70% for the banks to over Rs 56,000 crore. The LTV relaxation to 90% for all the banks announced by the RBI in last year also added to very good growth. Already given that the rate of gold has dropped nearly 18-20%.


Disbursements, LTV as well as timely interest collection have a significant bearing on the cushion available with the lenders in some types of basic terms of the value of the gold given as collateral compared with this loan outstanding. This, in turn, impacts asset quality. Therefore, the robust risk simply management systems, as well as timely auctions, are very crucial to offset volatility in the rate of your gold.


Whenever gross non-performing assets can also rise, ultimately the credit cost. This also underscores sound business acumen as well as a strong track record of timely auctions.



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