Recently, 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.
RBI’s move comes a couple of months after it barred IIFL Finance from sanctioning and disbursing fresh gold loans following material supervisory concerns and to protect the interests of customers.
It had flagged one of the concerns related to higher cash disbursement than what the norms stipulate.
In its recent advisory to all the NBFCs dealing in the gold loan businesses, the RBI 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.
Morgan Stanley noted that the gold financiers will need to implement operational changes following the recent directive.
It expects some transient financial impact, and does not foresee significant delays in transaction times as necessary processes are already established.
Speaking on the development, VP Nandakumar, Managing Director & CEO of Manappuram Finance, a leading gold loan business company said that the RBI’s advisory reiterating the limit of Rs 20,000 for disbursing cash loans would not hamper the company’s business.
“Our highly popular product, Online Gold Loan, that forms 50% of our gold loan book, follows a fully paperless process of application and disbursement,” he said.
“Even for the loans originating at branches, most of our customers prefer direct transfers. Moreover, our employees are trained to convince customers about the same as it promotes smooth operations. We believe that the RBI has issued the said advisory to promote transparency and prevent potential disputes, and we support the same,” he added.
“We have always followed fully-compliant processes and will continue to do so. We don’t see the concerned advisory dissuading customers from obtaining gold loans.”
However, Manappuram Finance felt the heat at the stock market as its shares fell as much as 8.3% in intra-day deals today to its low of Rs 180.10.
Notably, the gold loans formed 51% of Manappuram’s assets under management (AUM), as of the December 2023 quarter.
However Morgan Stanley anticipates that Manappuram’s stock may perform better than Muthoot’s due to its relatively lower exposure to gold loans.
As per the RBI data, in the previous financial year (2022-23), the share of gold loan in the total loan of NBFCs was 59.7%. This was marginally down from 61.7% in the preceding financial year.
