Regulatory changes set to slow gold loan growth: CRISIL report
gold loan growth. The lenders will have to revisit policies and processes to ensure compliance, it said.
The Reserve Bank of India (RBI) recently flagged certain irregular practices in the loan against the gold jewellery space and asked lenders to comprehensively review their policies, processes and practices to identify gaps and initiate remedial measures in a timebound manner. This could potentially impact gold loan disbursements during the transition phase and curb growth in the business.
The circular is addressed to the supervised entities (SEs) of the RBI — all commercial banks, including small finance banks, primary (urban) co-operative banks and non-banking financial companies (NBFCs). Some areas highlighted in the circular of deficiencies in the monitoring of the loan-to-value (LTV) ratio, asset classification norms for overdue loan accounts, and inadequate due diligence in monitoring the end-use of gold loans among others.
The circular comes in the backdrop of high growth in the gold loan portfolio of both banks and NBFCs over the past few quarters. Retail loans against gold jewellery of banks increased by 37% (non-annualised) between April 2024 and August 2024 even as gold prices rose. For gold-loan-focused NBFCs, growth in assets under management in the first quarter of this fiscal was 11%2 (non-annualised).
Says Malvika Bhotika, Director, CRISIL Ratings, “The regulations aim to ensure consistent application of guidelines in the gold-loan space and protect borrower interest. Adherence is likely to
