Indian gold loans to slow after new curbs: rating agency

NEW DELHI, March 28 (AsiaPulse) - The Reserve Bank of India (RBI)'s recent guidelines for the gold loan sector will significantly moderate the growth and profitability over the next year, said a Crisil report. "Business growth is likely to fall from 80 per cent per annum to 20-25 per cent per annum and return on assets (RoA) is expected to fall from the currently high level of 4.5 per cent to 2.5-3 per cent," the rating agency said.
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However, the RBI guidelines will have an overall positive impact on the sector over the long-term, as these will reduce regulatory uncertainties that the sector has witnessed in the recent past and enhance stakeholders' confidence, it said.

The guidelines will also significantly enhance the gold loan companies' ability to absorb the impact of any sharp decline in gold prices, thereby improving the sector's asset quality in the long term, it said.

RBI regulations cap the loan-to-value (LTV) ratios on lending against gold jewellery at 60 per cent (compared with the current average LTV ratio of around 75 per cent) and mandate a Tier 1 capital adequacy ratio (CAR) of 12 per cent, it said.

The LTV cap is likely to result in significantly lower growth rate