RBI must probe loan-to-value norms: gold loan firms
- Recently, the Association of Gold Loan Companies requested the RBI to investigate violations by certain bank branches of the norm that caps the loan amount against pledged gold jewellery.
- This plea comes as banks continue to focus on growing their gold loan portfolios even after the RBI's temporary relaxation in the Loan-to-Value (LTV) norm ended.
Violations of LTV Norm
- The Association highlighted instances of both public and private sector banks violating the 75% LTV norm.
- The norm states that the loan amount cannot exceed 75% of the value of the collateral.
- Some bank branches are extending gold loans beyond this limit, with loans ranging from 80-90%, violating regulatory guidelines.
Focus on Agricultural Gold Loans
- Banks are increasingly focusing on agricultural gold loans due to the benefits of priority sector lending classification and easier recovery in case of default.
- However, growth in gold loans in the non-agriculture segment continues to rise.
- Additionally, there are concerns about customers without agricultural activity availing agricultural loans which is against the regulations.
Gold Loan Growth
- According to a Crisil Market Intelligence and Analytics Research report, gold loan finance witnessed a CAGR of 15% between fiscal 2018 and 2022.
- This was driven by stable gold prices and increased demand during the pandemic.
- As of March-end 2022, banks and NBFCs collectively held outstanding gold loans of ₹5,09,400 crore, with banks holding 78% and NBFCs holding 22% shares.
Prelims Takeaway
- Loan-to-Value (LTV) Ratio
- Priority Sector Lending