Increase in LTV may help to improve business of gold loan companies: ICRA
By Vaibhav Aggarwal
Jan 8, 2013
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The monetary and banking regulator, Reserve Bank of India's proposed revision of the loan to value (LTV) ratio, from the existing 60 percent to 75 percent, is expected to augment the business volume of gold loan companies, this is reported by the rating agency ICRA's research.

The report says, "Standardisation of valuation of gold and increase in the LTV cap from 60 per cent to 75 per cent would help gold loan companies increase business volume."

It also mentioned that the growth rate of gold loan providers may be less than 120 percent and above compounded annual growth rate this segment had witnessed for the past three years.

The report by KUB Rao committee, formed by the central bank on gold loan firms, has been released on the 2nd of this month. The report suggests the increase of LTV ratio and a number of other modifications. It also talks about the positive role played by banking institutions and non-banking finance companies (NBFCs) in gold loans segment and says that banks have an advantage over NBFCs in this segment of loans.

On the matter, the report says, "As banks enjoy a competitive advantage over NBFCs, and given the healthy risk-adjusted returns and growth prospects in the gold loan segment, banks could step up the pace of growth of gold loans. Were this to happen, the market share of NBFCs in gold loans may not increase from the current 28 per cent by FY12 end."

The report also observed that the growth rate of institutions engaged in the business of providing loans on pledged gold may slowdown due to its dependence on wholesale funding sources.

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