Retail non-banking finance companies (NBFCs) are slowing down on gold loans following RBI guidelines that restricted loan-to-values of such loans.
According to a report by ratings agency Icra, retail NBFCs credit growth has come down to a mere 5% in the first nine months of 2013-14 against an overall growth of 15% in the same period last year. Icra cited that the slowdown in credit growth for NBFCs was mostly caused mainly by degrowth in the commercial vehicle (CV), construction equipment (CE) and gold loan segments.
Credit extended by NBFCs at the end of December stood at R3,40,000 crore and gold loans degrew by about 14% for the nine-month period ended December, compared to the growth of about 5%, said Icra. Nirmal Jain, chairman of India Infoline (IIFL), said their NBFC arm has degrown their gold loan book from 40% of advances to 30% of their advances.
?In the last one year, gold loans have degrown. The reason for this was that gold lending norms were tightened by the RBI and secondly there was a lot of volatility in gold prices last year. And we?re looking at keeping it at that level more or less,? Jain said in a press conference earlier this week. IIFL?s gold loan book currently stands at about R3,000 crore.
Initially, RBI had restricted the LTV ratio for gold loan NBFCs at 60%. But in January, it had increased the cap to 75%. Experts also feel other restrictions by regulatory bodies also led to the decline in gold loans. ?Adverse impact on financial flexibility following RBI regulations on private placement of debentures, revised RBI securitisation guidelines, removal of priority sector tag on loans backed by receivables of gold loan and cautious lender approach given uncertain regulatory environment hurt gold loans,? said Vibha Batra, senior vice-president at Icra Ratings.
This has prompted NBFCs to look into growing other portfolios to sustain their businesses.
Shriram City Union Finance (SCUF), for example, is looking to grow their MSME finance loan book. Last year, SCUF?s loan book had 42% of gold loans and 46% in MSME loans.
?In the last one and half year, gold has significantly come down, primarily because of lower LTVs. We did not want it to become a gold finance company. Because if you have your loan book more than 50% as gold loans then we?ll be graded as a gold finance company. Today, the loan book is about 20% and almost 50% of the loan book is MSME finance? explained GS Sundarrajan, MD at SCUF.
Sundarrajan added that the company will not be growing its gold loan portfolio beyond 25% of the book. Even gold NBFCs such as Manappuram Finance are looking at new opportunities to grow.
