Gold auctions on the rise as NBFCs look to clean up books on RBI diktat, rise in prices

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Subscribe to enjoy similar stories. Companies lending against gold are auctioning the collateral in higher quantities to recover stressed loans, at a time of rising regulatory scrutiny over the sector. Gold auctions that rose sequentially in the second quarter are expected to rise further in the ongoing December quarter, experts said, since directions from the Reserve Bank of India (RBI) pertaining to gold loans came only at the end of the second quarter.

Cumulative data on gold auctions is not available; however, leading gold loan financier Muthoot Finance Ltd said at an analyst call that it auctioned gold worth ₹69 crore in the first quarter, followed by ₹250 crore in the second quarter. Another gold-focused non-bank lender, Manappuram Finance, said in its analyst call that it auctioned gold worth ₹360 crore in the second quarter. The company said it has an average book loan-to-value (LTV) ratio of 58%, against the regulatory maximum of 75%.

LTV of 75% means a gold loan of ₹75 should be backed by gold collateral worth ₹100. Experts said the auction process and the recalibration in gold lending practices by lenders, following the RBI's new guidelines, is expected to take a few weeks, which means the bulk of the impact of rise in auctions is likely to be seen in the third quarter. “A lot of regulatory overhaul has played out for gold loan NBFCs," said Jinay Gala, director, India Ratings & Research, adding there has been a rise in gold loan auctions as NBFCs look to adhere to the streamlined norms.