According to the research report released by Goldman Sachs: Mahindra Finance has stopped providing gold loans due to prevailing price volatility in the prices of gold, reports PTI.
"The company has stopped gold loans due to volatile gold prices," the report said.
Gold appreciated most in the month of August due to global uncertainties in Europe and US, and peaked at $1,923 per ounce internationally. Recently, it has fallen sharply and reached at the level of $1,500 per ounce and company was facing pressure on its margins due to high borrowing costs, report added.
The company has a strong presence in rural areas of the country and provides various credit facilities, like home loans, personal loans and vehicle loans, personal loans, so by stopping gold loans, the company will not face any impact on its other loans.
While, Muthoot Finance has witnessed a five-fold rise in the retail loan portfolio from Rs 3,000 crore in March 2009 to Rs 15,000 crore in March 2011 due to rise in gold prices over the period of two years. The company said it will continue providing gold loans as they have enough room for price volatility.
The company also added that Muthoot's loans are linked to 'benchmark gold price' which does not affect due to daily price volatility as they wait prices to get stabilized. The company is also expecting a rise of 40-50% in its retail loan portfolio.