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Gold financiers under RBI’s lens raising concerns on irregular practices
Post banning one NBFC for irregularities, RBI has released a circular citing reviewing procedures followed in gold loan business and has asked lenders to adhere to the prescribed norms. In the circular, central bank has highlighted deficiencies including
- (i) shortcomings in use of third parties for sourcing and appraisal of loans;
- (ii) valuation of gold without presence of customer;
- (iii) inadequate due diligence and lack of end use monitoring of gold loans;
- (iv) lack of transparency during auction of gold ornaments and jewellery;
- (v) weaknesses in monitoring of LTV; and
- (vi) incorrect application of risk-weights.
Gold financiers need to focus on compliance with regulations as any discrepancy remains a business risk, especially in the wake of ban on an entity. However, anticipation of rate cut cycle and resultant rise in gold price remains a tailwind for business growth. Thus, we continue to remain positive on selective gold financiers (Muthoot Finance, Manappuram Finance & CSB Bank) with favourable risk reward.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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