Suspense Crime Sach Ka Dam
A domestic rating agency Crisil on Tuesday said the recent notification by the Reserve Bank of India (RBI) asking financiers to review gold loan practices could slow loan growth in the near term and lead to increased asset quality stress. Potentially, this could impact gold loan disbursements during the transition phase and restrict business growth, Crisil said in a note, PTI reported.
Asked to do a comprehensive review of processes and practices
According to the news, it is worth noting that a few weeks ago, RBI had identified some irregular practices in loans against gold jewelry and asked lenders to comprehensively review their policies, procedures, and practices to identify gaps and initiate remedial measures promptly. The notification identified deficiencies in monitoring loan-to-value (LTV) ratios, asset classification norms for overdue loan accounts, and insufficient diligence in monitoring the end use of gold loans.
Some increase in loan defaults may be seen.
Crisil said some increase in reported loan defaults may be seen as entities revisit their existing non-performing asset (NPA) recognition norms and/or policies and procedures for disbursing loans to existing customers. However, it was quick to add that in the gold loan business, credit cost is a more appropriate indicator of asset quality and overall loan losses are seen to be under control due to Indians’ emotional attachment to the precious metal.
Gold loan growth may decline in the next few quarters.
Crisil director Malavika Bhotika said the regulations are aimed at ensuring consistent application of guidelines in the gold loan sector and protecting borrower interests. Bhotika said non-compliance is likely to impact disbursements and slow gold loan growth for both banks and NBFCs in the next few quarters. The senior official said NBFCs are expected to adopt regulatory measures impacting their business within a reasonable timeframe, unlike in the recent past when limits were imposed on cash disbursements.
