JOIN USThe Reserve Bank of India (RBI) has decided to impose stricter norms for lending against gold by non-banking finance companies (NBFCs) as huge growth in such loans in the past few years increased risks to the banking system as well as retail investors.
In a notification issued on Wednesday, RBI said it has directed NBFCs, especially those who have 50 per cent of their assets in gold should have a minimum equity capital of 12 per cent by April 2014.
Further, the apex bank decided that all NBFCs shall, hereafter maintain a Loan-to-Value (LTV) ratio, not exceeding 60 per cent for loans granted against the collateral of gold jewellery and also disclose in their balance sheet the percentage of such loans to their total assets.
RBI also made it clear henceforth that NBFCs should not grant any advance against bullion or primary gold and gold coins. Also, RBI observed that NBFCs who are predominantly engaged in lending against the collateral of gold jewellery have recorded significant growth in recent years both in terms of size of their balance sheet and physical presence. This in turn led to their increased dependence on public funds including bank finance and non-convertible debentures issued to retail investors, it added.
Meanwhile, Muthoot Finance in a release issued here welcomed the measure taken by RBI which will go a long way in ensuring that the players in the industry have robust capital structure to address any possible fall in gold prices. It felt that RBI has taken these steps in order to regulate the risk especially with respect to new entrants to the sector, who may not be aware of the various nuances of the business and also to strengthen the existing companies.
The company also pointed out that currently its gold loan assets under management is around Rs 24,000 crore and roughly the value of jewellery with it is more than Rs 40,000 crore. Hence, it added: “Our LTV is below 60 per cent and as a matter of abundant caution we had been progressively reducing our lending rate per gram as a risk management measure, seeing the volatility in the gold prices during the last couple of months.”
Repayment norms
The RBI has allowed repayment of loans by resident citizens, which they have taken from their non-resident relatives, to the NRE or foreign currency non-resident (bank) accounts.
“It has been decided that banks may allow repayment of loans to NRE/foreign currency non-resident (bank) [FCNR(B)] account of the lender concerned subject to the condition that the loan to the resident individual was extended by way of inward remittances in foreign exchange through normal banking channels,” an RBI circular said here.
Currently, an individual resident is allowed to borrow not more than $250,000 or its equivalent from his or her non-resident relative, subject to the conditions of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000.
Capital requirements for co-operative banks to rise: RBI
Mumbai, PTI: The Reserve Bank, on Thursday, said the minimum capital requirements for setting up cooperative banks will soon be hiked to as much as Rs 3 crore from Rs 15 lakh at present. “Depending on the location and area...we are coming up (with the guidelines for cooperative banks). There will be liberal norms for setting up a bank in backward areas and slightly tougher norms in the banked areas,” RBI executive director S Karuppasamy told reporters here on the sidelines of an event organised by Greater Bombay Cooperative Bank.
He said under the existing norms, a cooperative bank can be set up with a minimum capital of Rs 15 lakh, which will now be increased to Rs 50 lakh for banks in the backward areas and Rs 3 crore for urban areas which already have banking infrastructure.
Asked about the timeline for the new guidelines, Karuppasamy said, “We are in the final stage... will come out with it shortly.” Co-operative banks have a strong presence in Maharashtra, which is home to the biggest of the banks in the sector, while other states such as TN, Karnataka and Gujarat also have strong co-operative banking sector.
The new guidelines will also include a provision under which well-managed cooperative credit societies can turn into co-operative banks, Karuppasamy said. “Well-managed credit societies and financially sound credit societies will be converted into co-operative banks provided they satisfy certain norms on capital adequacy, NPAs, etc.,” he said.