Larger gold loan players less impacted by RBI advisory

The Reserve Bank of India (RBI) has issued an advisory for entities giving gold loans (GL) where it identified irregular practices and gave three months for lenders to correct these and avoid supervisory action.

- DEVANGSHU DATTA

The review revealed irregularities like improper use of third parties for loan sourcing, gold valuation without the customer's presence, poor due diligence, lack of transparency in auctions, weak monitoring of loan-to-value (LTV) ratios, and incorrect application of risk weights. Threat of RBI action could impact growth in GL and impose additional costs on lenders. But larger entities will be less affected.

Prior to the RBI circular, ICRA forecast gold loans (GL) by banks and non-banking financial companies (NBFCs) would exceed ₹10 trillion in financial year 2025 (FY25) and reach ₹15 trillion by March 2027.

NBFCs lead in retail gold loans and are expected to expand at 17-19 per cent in FY25. But yields are expected to be lower by 200-300 basis points than the peak levels of 4-5 years back.

ICRA expects NBFC GLs to expand at 17-19 per cent in FY25 and projects it to grow at an annual rate of 14-15 per cent during FY26-FY27.