In a significant move, the Reserve Bank of India (RBI) has tightened the rules for lending against gold jewellery by non-banking finance companies (NBFCs).
It has now made it mandatory for NBFCs to maintain a loan-to-value (LTV) ratio of not exceeding 60 per cent for loans granted against the collateral of gold jewellery. Also, it has made it compulsory for them to disclose in their balance sheet the percentage of such loans to their total assets.
By April 1, 2014, NBFCs engaged in lending against gold jewellery (such loans comprising 50 per cent or more of their financial assets) must maintain a minimum Tier-l capital of 12 per cent. The apex bank has also made it clear that NBFCs should not grant any advance against bullion / primary gold and gold coins. The stricter norms are sought to be introduced in the wake of significant growth in recent years (both in terms of size of their balance sheet and physical presence) shown by NBFCs that are pre-dominantly engaged in lending against the collateral of gold jewellery.
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This, in turn, has led to their increased dependence on public funds, including bank finance and non-convertible debentures issued to retail investors. The rule-tightening exercise is seen as an exercise in the introduction of prudential measures by the apex bank.
Loan repayment
The RBI has allowed select banks to let repayment of loans taken by individual resident in India from his/her close relatives outside India to the NRE (non-resident external)/ FCNR (B) (foreign currency non-resident (Bank) account of the lender.
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This is, however, subject to the condition that the resident individual was extended the loan by way of inward remittance in foreign exchange through normal banking channels or by debit to the NRE / FCNR (B) account.
The facility is extended to authorised dealer Category-I banks only.