The restrictions imposed on gold loan operations of non-banking finance companies (NBFC) have raised the hackles of these firms as they feel the lack of uniformity in guidelines will help banks gain market share.
NBFCs are set to approach the Reserve Bank of India (RBI) to request the regulator to extend the new guidelines to banks as well.
Last week, RBI released a new set of norms that restrict NBFCs from offering more than 60 per cent of the value of gold as loan. In other words, if a client provides gold jewellery worth Rs 10,000 as collateral, the NBFC can offer the borrower a maximum of Rs 6,000 as loan. This cap on the loan-to-value (LTV) ratio is not applicable to banks.
"We will be requesting RBI to extend these guidelines to banks also. There should be a level playing field for us," said a senior official of a large NBFC engaged in the gold loan business.
Industry players said banks will leverage this opportunity to attract borrowers and expand their market share in gold loan business.
For example, the LTV ratio for HDFC Bank's gold loan business is 80-90 per cent. It would make sense for a customer to go to HDFC Bank instead of NBFCs, such as Muthoot Finance or Manappuram Finance, for gold loans as more money will be lent for the same value of jewellery.
"One of the key reasons why NBFCs have done well in the gold loan space has been the higher LTV ratio. NBFCs have marketed this product by telling their customers that the loan amount will be almost same as the value of the gold jewellery, there will be less documentation, and fast disbursal. The new guidelines will definitely go against us," said a senior executive with another NBFC.
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This is also the second regulatory directive relating to NBFCs’ gold loan business in the past 12 months. In March 2011, RBI had notified that banks' credit to NBFCs for giving loans to individuals and other entities against gold jewellery will not be treated as priority sector advances.
Bankers confirmed they will use this opportunity to attract gold loan borrowers.
"Banks generally have a loan-to-value ratio of 70-80 per cent in gold loan business. We will continue to follow this practice. We expect some borrowers to shift to banks for gold loans as LTV ratio offered by us is now higher than NBFCs," said a senior official of Andhra Bank.
According to industry estimates, state-run banks have 48 per cent share in the domestic gold loan market, while private sector lenders have around 12 per cent. NBFCs have expanded their gold loan portfolio by 72 per cent year-on-year till December 2011 against 32-37 per cent growth witnessed by banks in this period.
Banks have recently turned aggressive in gold loan business as they offer better returns and have relatively stable asset quality. HDFC Bank has nearly doubled its gold loan portfolio in the current financial year. It entered the space only three years ago and is already one of the top players among the new-age private banks.