The recent Reserve Bank of India (RBI) directive of capping cash loans at Rs 20,000 is likely to have a limited impact on gold loan non-banking financial companies (NBFCs) due to the growing prevalence of digital transactions in the sector.
Industry players are expecting manageable operational changes with transitory financial impacts.
Gold loan NBFCs, which heavily rely on cash transactions for loan disbursements, are likely to adjust their operations to comply with the new guidelines. The RBI’s move follows earlier restrictions imposed on IIFL Finance’s gold lending activities in March 2024.
A significant portion of gold loans, particularly those offered through online platforms, are already processed through paperless and direct transfer methods, aligning well with the RBI’s push for increased transparency and reduced cash transactions.
Muthoot Finance, with a substantial 84% of its overall portfolio comprising gold loans, is reportedly transacting 40% of these loans online. Similarly, Manappuram Finance, where gold loans constitute 51% of its lending, processes 56% of these loans digitally.
Financial impact
According to analysts, while the cash disbursement cap necessitates operational adjustments, the financial impact is expected to be transitory and manageable for most gold loan NBFCs. Among the impacted entities, Muthoot Finance and Manappuram Finance are likely to experience notable changes in their loan disbursement processes, given the composition of their loan portfolios.
Furthermore, the regulatory actions and the subsequent need for enhanced compliance measures could escalate operational costs across the sector, affecting the break-even assets under management (AUM) required for new branches. Analysts suggested a standardised disbursal process among gold lenders to mitigate the variability in internal policies and comply with rising regulatory thresholds.
