RBI asks NBFCs not to lend more than Rs 20,000 in cash for gold loan

The Reserve Bank of India (RBI) has cautioned the non-banking finance companies (NBFCs) extending gold loans against breaching the Rs 20,000 cap on cash loan disbursal.

While issuing the advisory, the central bank referred to the provisions of the Section 269 SS of Income Tax Act, 1961, that stipulates no individual can receive more than Rs 20,000 as loan amount in cash.

Gold loan NBFCs have been advised to strictly adhere to the provisions of the IT Act, the regulator said in a communication which has been reviewed by Business Standard.

In March, the RBI had barred IIFL Finance, a non-banking financial company, from sanctioning and disbursing fresh gold loans following “material supervisory concerns” and to protect the interests of customers.

One of the concerns was related to higher cash disbursement than what the norms stipulate.

The IIFL management, however, conveyed that majority of the concerns are operational in nature, and not an outcome of any unethical practices by the company.

The NBFC’s gold loan asset under management was around Rs 24,700 crore which was about 31 per cent of its total asset under management. IIFL Finance operates over 2,721 dedicated gold loan branches across 25 states/UTs, staffed by approximately 15,000 employees.

NBFCs remain the dominant provider of gold loans although their growth trailed that of banks. According to RBI data, the share of gold loan in the total loan of NBFCs was 59.7 per cent in 2022-23, marginally down from 61.7 per cent in the previous financial year.

NBFCs are required to maintain a Loan-to-Value (LTV) ratio not exceeding 75 per cent for loans granted against the collateral of gold jewellery.

An email sent to RBI to seek comments on the issue remained unanswered till the time of going to the press.