RBI Rate Cut Alert: Gold Loan Process To Get Easier? Gold Companies in Focus

RBI MPC Announcement: The Reserve Bank of India is planning to issue comprehensive regulations and prudential norms related gold loans to simplify the process of borrowing against collateral for gold jewellery, said RBI Governor Sanjay Malhotra on Wednesday. The announcement sparked a decline in share price of top gold lending NBFCs including Manappuram and Muthoot Finance.

While announcing the RBI monetary policy committee (RBI MPC) outcome today, RBI Governor Sanjay Malhotra touched on multiple aspects related to bank loans, one of them being borrowing against gold collateral.

RBI MPC Outcome

The RBI MPC announced a 25 basis point rate cut in repo rate on Wednesday and changed the policy stance to 6% and changed the policy stance to accomodative. Additionally, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) were adjusted to 5.75% and the marginal standing facility (MSF) rate and the Bank Rate were reduced to 6.25%.

The decision aligned with RBI's objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% supporting growth.

Loans against the collateral of gold jewellery and ornaments, commonly known as gold loans, are extended by regulated entities, both banks and NBFCs, for consumption and income generation purposes. In order to harmonise guidelines across various type of regulated entities, keping in view their differential risk-bearing capabilities we shall issue comprehensive regulations on prudential norms as well as conduct related aspects for such loans.

RBI MPC announcement aligned with GoodReturns RBI MPC poll based on the inputs from more than 30 economists. GoodReturns RBI MPC Poll had indicated a 25 basis points rate cut by RBI MPC in its meeting.

RBI MPC Announcement: What Did RBI Governor Say About Gold Loans Regulations?

RBI Governor Sanjay Malhotra in his speech today underscored the need for a comprehensive guideline for gold loans for easier and simpler borrowing. "Loan against the collateral of gold jewellery and ornaments, commonly known as gold loans, are extended by regulated entities both banks and NBFCs for both consumption and income generated purposes," said Sanjay Malhotra highlighting the role of NBFCs in gold loans in India.

He also stressed that there is a need for a comprehensive guidelines on gold lending. A comprehensive guideline would help in curbing unfair practices in the segment by borrowers as well as lenders.

"In order to harmonise guidelines across various types of regulated entities to the extend possible. Keeping in view their differential risk bearing capabilities we shall issue comprehensive regulations on prudential norms as well as conduct related aspects for such loans," Malhotra said while announcing RBI MPC outcome.

Shares of Gold Loan Companies Tank After RBI Announcement

Shares of top gold lenders including Manapuram, Muthoot Finance, etc nosedived on Wednesday after RBI Governor Shaktikanta Das's announcement related to gold rate regulations. Manappuram Finance shares were down nearly 3% on BSE during Wednesday's intraday trade. Muthoot Finance shares were trading 10% lower to Rs 2064.65 apiece on BSE.

Gold Loans Under RBI Scanner

RBI Governor Sanjay Malhotra's announcement on gold loan guidelines came months after news agency Reuters had reported that the central bank is planning to introduce stricter guidelines for gold loans.

RBI is mulling over stricter underwriting procedures for gold loan lenders. Additionally, it will closely monitor how borrowers use the loaned money. The move will help in curbing the rapid growth of the gold loan segment and bringing pause to unfair practices related to gold loans, reporter Reuters citing industry sources.

NBFCs and Banks Must Consider Deeper Background Checks

As per the report, RBI will issue comprehensive guidelines to urge lenders to conduct deeper background checks on borrowers and verify the ownership of gold being pledged. As Malhotra hinted at comprehensive gold loan guidelines in his speech, the central bank is reportedly planning to ensure that all entities follow a uniform standard while processing gold loans and prevent unethical lending practices to maintain financial stability in the sector.