India Reserve Bank Tighten Up Rules to Counter Gold


(Reuters) – India’s Reserve Bank of has tighten up rules for finance companies which loan against gold, a fast-growing business in the country, in line with the recommendations of an interior section.

The RBI said lenders need to worth the pledged gold at the mean concluding cost of 22-carat gold for the preceding 30 days as cited by the Bombay Bullion Association Ltd, to arrive at the loan-to-value ratio.

The ratio would stay at 60% for loans against jewelry.

“Currently, there is no benchmark method for arriving at the worth of gold acknowledged as collateral and valuation is random and opaque,” the central bank said in a notification handed out late on Monday.

Shares of gold-based lenders slumped, with Muthoot investment Ltd dropping 6.4% and Manappuram Finance Ltd down 3.7% on Tuesday.

The central bank furthermore streamlined the method by which lenders auction gold when a borrower defaults, saying lenders need to declare a book cost for the promised ornaments.

Lenders would furthermore need RBI acceptance to open parts exceeding 1,000. No new ones would be allowed without ample storage facility for gold.

“Unbridled growth may not be in the general concerns of the concerned NBFC or the sector and there is a need for consolidation of the living network,” the centered bank said.

Muthoot Finance has 3,801 branches and Manappuram Finance has 3,293. (According to their websites)