Banks to be cautious despite gold loan LTV relaxation: Report

Banks to be cautious despite gold loan LTV relaxation: Report

Mumbai: Despite relaxation in loan-to-impress (LTV) ratio on gold loans, banks are inclined to be cautious in lending and will withhold a buffer for any correction in the associated price of collaterals, says a characterize.

Final week, the Reserve Financial institution of India (RBI) had increased the permissible LTV ratio for loans against pledge of gold embellishes and jewellery for non-agricultural capabilities from 75 per cent to 90 per cent.

The amplify on LTV ratio on gold loans is for banks and will be appropriate up to March 31, 2021.

“We imagine gold loan non-banking finance companies have to no longer prone to be greatly impacted by RBI’s new guidelines allowing banks to lend up to 90 per cent of the gold impress, as prudent lending practices might maybe neutral query lenders to be cautious and withhold a cushion to supply for any fabric correction in the associated price of collaterals,” India Ratings and Learn said in its ticket.

While there stays a vivid little bit of opponents amongst banks, gold loan non-banking monetary companies (NBFCs) and moneylenders, they all moreover possess their bring collectively niche and this implies that truth appeal to various buyer segments, it added.

The agency believes lending cautiously for banks is particularly predominant in the mild of the most fresh like a flash upward push in gold costs (39 per cent over April 1 – August 11, 2020), which will enhance the probability of pullback.

It said as the credit likelihood in gold loans is extremely correlated to the collateral impress, any fabric correction pattern in gold costs might maybe amplify credit costs as successfully as the public sale likelihood.

Also, topping up with further collateral in between the tenor stays a challenge for the borrower profile that avails gold loans.

“Hence, prudence one day of rising gold costs will query cautious LTVs and shorter tenor exposures to hedge the likelihood,” the agency said.

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