Mumbai, June 13 (IANS) The increase in the loan-to-value (LTV) ceiling provided in the RBI’s final directions on gold loans will support the growth of non-banking financial companies (NBFCs) offering them, according to a Crisil report released on Friday.
The benefit will play out despite the change in LTV computation for bullet repayment loans, which now need to also factor in the accrued interest payable at the time of maturity, rather than just the initial disbursed principal amount. The increase in LTV ceiling will help offset this impact, the report states.
The final directions issued recently propose an LTV grid based on ticket size and permit higher LTVs for lower-ticket consumption loans. The permitted increase in LTV is highest for loans with a ticket size of less than Rs 2.5 lakh, with the limit now at 85 per cent vis-a-vis 75 per cent earlier.
As per Crisil Ratings estimates, loans with a ticket size less than Rs 5 lakh comprise close to 70 per cent of the gold loan portfolio for NBFCs.
Crisil Ratings Director Malvika Bhotika said: “The revision in LTV norms for lower-ticket loans is expected to benefit gold loan-focused NBFCs in two ways. First, it will provide a higher cushion to meet the LTV requirements even after factoring in accrued interest in bullet repayment loans. Second, this will provide additional headroom for lending. For bullet loans, the LTV at disbursement could increase somewhat from 65-68 per cent currently to 70-75 per cent.”
“However, disbursement at higher LTVs will mean lower cushion to manage gold price fluctuations and will necessitate a sharper focus on risk management practices and timely auctions to manage ultimate losses,” Bhotika added.
The draft directions had proposed to have 1 per cent additional standard asset provisioning in case of LTV breaches for a continuous period of 30 days. The final directions have not made any reference to this additional provisioning. However, the credit policy of the lender must specify the action to be taken for LTV breach as well as the trigger event for auction, among others.
Another important direction is the process to be followed for loan renewal and/or top-up, which is in line with the draft directions issued earlier. For bullet repayment loans, renewals or top-ups can be extended only after repayment of the entire accrued interest. Hence, NBFCs will need to focus on periodic interest collection to maintain their ability to offer renewal/ top-up loans.
The directions are applicable from April 1, 2026, giving NBFCs the required time to reorient their systems and processes to comply with the revised regulations. While there could be some hiccups for certain players as they realign their operations, the regulations will benefit the sector and harmonise the regulatory framework across all regulated entities, the report states.
However, the ability of NBFCs to manage increasing competition — from banks in particular — will bear watching as these directions are applicable to all regulated entities, the report added.
–IANS
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