Central bank regulations on gold push Indian NBFCs to the wall

NEW DELHI (Scrap Monster) : The Non-banking financing companies (NBFCs) in India are said to be at the receiving end of  the latest central bank guidelines restricting gold loans.

The Reserve Bank of India (RBI) has decided to tighten its grip over NBFCs and other money lenders operating in the country by prohibiting them from extending loans against gold exchange traded funds (ETFs) and gold mutual funds (MFs). The RBI has also clarified that banks and NBFCs should not grant advances for purchase of gold in any form. No advances should be granted for purchase of gold ETFs and gold MFs too.

The fresh regulations are reported to have aggravated the anxieties of NBFCs, which had been already reeling under immense pressure due to the steep fall in gold prices. The NBFCs are believed to lend upto 75% to 80% of the gold price. The gold prices have corrected by more than 15% during the year. Also, when auctioned, the value of gold would be depreciated by at least 10%. Thus the total loss for the NBFCs would be as high as 25%, which essentially means that the gold held by them are turning out to be worthless.

The shares of NBFCs trading in the Indian stock exchanges witnessed sharp sell-off following the news of RBI directive.  The shares of gold-loan firms- Muthoot Finance and Manappuram Finance tanked by more than 3%.