<p>The Reserve Bank of India (RBI) has tightened rules for finance companies which lend against gold in line with the recommendations of an internal panel.<br /><br /></p>.<p>In a notification, the RBI stated that the recommendations of the panel headed by K U B Rao related to NBFCs lending against the collateral of gold jewellery have been broadly accepted by the central bank, which led issuing guidelines now.<br /><br />Accordingly, the RBI said lenders need to value the pledged gold at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association Ltd, to arrive at the loan-to-value ratio, while the ratio would remain at 60 per cent for loans against jewellery.<br /><br />"Currently, there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary and opaque," said the notification.<br /><br />Also, the RBI streamlined the process by which lenders auction gold when a borrower defaults, saying lenders need to declare a reserve price for the pledged ornaments. Lenders would also need RBI approval to open branches exceeding 1,000 and no new ones would be allowed without adequate storage facility for gold.<br /><br />As such, some of the existing listed entities like Muthoot Finance and Manappuram Finance having 3,801 and 3,293 branches respectively may be affected by the RBI's notification. <br />"Unbridled growth may not be in the overall interests of the concerned NBFC or the sector and there is a need for consolidation of the existing network," the central bank said.</p>
<p>The Reserve Bank of India (RBI) has tightened rules for finance companies which lend against gold in line with the recommendations of an internal panel.<br /><br /></p>.<p>In a notification, the RBI stated that the recommendations of the panel headed by K U B Rao related to NBFCs lending against the collateral of gold jewellery have been broadly accepted by the central bank, which led issuing guidelines now.<br /><br />Accordingly, the RBI said lenders need to value the pledged gold at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association Ltd, to arrive at the loan-to-value ratio, while the ratio would remain at 60 per cent for loans against jewellery.<br /><br />"Currently, there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary and opaque," said the notification.<br /><br />Also, the RBI streamlined the process by which lenders auction gold when a borrower defaults, saying lenders need to declare a reserve price for the pledged ornaments. Lenders would also need RBI approval to open branches exceeding 1,000 and no new ones would be allowed without adequate storage facility for gold.<br /><br />As such, some of the existing listed entities like Muthoot Finance and Manappuram Finance having 3,801 and 3,293 branches respectively may be affected by the RBI's notification. <br />"Unbridled growth may not be in the overall interests of the concerned NBFC or the sector and there is a need for consolidation of the existing network," the central bank said.</p>
