RBI tightens norms for lending to gold finance companies

The central bank has asked lenders to reduce their exposure to NBFCs to 50% or more, who give loan against the precious metal

Mumbai: Concerned over spurt in gold imports, Reserve Bank of India (RBI) on Tuesday asked banks to reduce exposure to non-banking financial companies (NBFCs) giving loan against the precious metal and has set up a working group to suggest ways to deal with the issue, reports PTI.

The Reserve Bank, in its annual monetary policy statement, has also asked banks to set up internal exposure limits for those NBFCs who have gold loans portfolio of more than 50% of the total financial assets.

"Banks should reduce their regulatory exposure ceiling in a single NBFC, having gold loans to the extent of 50% or more of its total financial assets, from the existing 10% to 7.5% of bank's capital funds," RBI governor D Subbarao said.

He further said that banks should have an internal sub-limit on their aggregate exposure to all such NBFCs.

The Working Group, headed by KUB Rao (a senior RBI official), will conduct a detailed study of the issues connected with rising gold import and loans. The group will submit its report by July-end.

Among other things, it will examine the current practices of NBFCs involved in lending against gold and also whether it is influencing price of precious metal.

RBI, Mr Subbarao said, has been receiving complaints against some NBFCs which are not following the guidelines while giving loans against gold.

Concerned over the spurt in gold imports and loan against precious metal, RBI had earlier tightened the prudential norms to check excessive lending by NBFCs.

India's gold and silver imports during first 11 months of the current fiscal stood at $54.5 billion. It had imported gold worth $40.5 billion and silver worth $1.9 billion in the last fiscal.

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