High interest rate and lack of clarity on end use of funds was the primary reason behind the regulator asking banks not to classify loans to non-banking finance companies (NBFCs) for on-lending against gold jewellery as priority sector lending.
On Wednesday, the Reserve Bank of India (RBI) had asked banks to not classify loans extended to NBFCs which were lent by NBFCs against gold as priority sector loans.
“Gold loan companies are lending the money at a very high rate to customers. The money may not be going to priority sector borrowers. We do not know whether the gold loan companies are using the money, which they borrowed from banks, for borrowers who come under priority sector,” K C Chakrabarty, deputy governor of the Reserve Bank of India, said on Friday.
According to norms, banks have to extend 40 per cent of their loans to the priority sector. NBFCs, however, do not have such mandate.
Chakrabarty, however, clarified that banks could continue to lend to the NBFCs which are in the gold loan business.
