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Gold financiers under RBI’s lens raising concerns on irregular practices

ICICIdirect Research 04 Oct 2024 DISCLAIMER

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.

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