Gold loan companies today welcomed the latest measures by the Reserve Bank,saying they will strengthen the industry,but analysts pointed out that the clampdown will erode the margins of these companies and curtail growth.
While the three largest pure-play gold loan finance companies,Manappuram Finance,Muthoot Finance and Muthoot Fincorp,welcomed the new RBI measures saying they will help regulate the un-iniitated newcomers,analysts said these players will see margin squeeze apart from pressure on growth.
The Kerala-based Muthoot Fincorp said the RBI measures would help curb the reckless practices of the recent entrants.
“The stipulated higher 14 percent CAR and capping LTV (loan to value ratio) at 60 percent will strengthen the well-managed existing gold financiers and curb the reckless practices of recent entrants,” the Thiruvananthapuram-based Muthoot Fincorp director George Muthoot said.
He also pointed out the 60 percent cap on LTV is not a dampener for his company as he lends only under 60 percent,apart from maintaining a much higher CAR of 15 percent.
Similarly,the largest player by asset base,Kochi-based Muthoot Finance said its LTV is well under the new regulation and it has a higher CAR of 13.37 percent. It further said its gold loans are worth around Rs 24,000 crore while their value is over Rs 40,000 crore.
“As a matter of 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,” the company statement said.
All these companies also said they do not finance against bullion/primary gold and gold coins and lend money only against security of jewellery.
However,analysts said the RBI measures would squeeze their margins and curtail growth.
“The RBI measures are negative for the gold financing NBFCs as it will erode their margins and curtail their future growth rate,” Angel Research vice-president for banking Vaibhav Agrawal said.
Yesterday,the RBI issued a notification restricting the loan to value ratio of all non-banking finance companies (NBFCs) engaged in gold loan business at 60 percent.
Presently LTV ratio for most gold loan companies stand at more than 60 percent,according to industry experts.
The Thrissur-based Manappuram Finance while welcoming the RBI move,admitted that its LTV is 66 percent.
“The average LTV offered by us amounts to 66 percent. As a result of the latest RBI directive,this will come down. But with the proposed consolidation of our branch network and consequent optimisation of operating expenses at the branch level,the impact of the LTV reduction on yield will be mitigated,” Manappuram Finance executive chairman V.P. Nandakumar said,adding his CAR is a high 18.37 percent.