Welcoming the RBI directive, Muthoot Finance Ltd said that it was against the practice of extending loans against bullion and gold coins.

The latest RBI directive to NBFCs would strengthen the sector and ensure robust operating practices and risk control measures, the company added.

“We welcome the measure taken by RBI which will go a long way in ensuring that the players in the industry have robust capital structure to address any possible fall in gold prices”, the statement said.

As a matter of abundant caution and risk management measure, the company been progressively reducing the lending rate per gram, seeing the volatility in the gold prices during the last couple of months, the statement added.

Manappuram reaction

Manappuram Finance Ltd was of the opinion that the new RBI measures would strengthen well capitalised established players in the business with sound operating and risk management practices.

Mr V. P. Nandakumar, Executive Chairman said in a statement that the RBI directive addresses the risks to the sector arising from the entry of multiple new players, who lack the experience or the nuances of the business.

He pointed out that the average LTV offered by Manapuram on its gold loans amounts to 66 percent.

As a result of the RBI directive, the LTV offered by the company would come down to be on a par with the guidelines.

With the proposed consolidation of the company's branch network and consequent optimisation of operating expenses at the branch level, the impact of the reduction in LTV on yield will be mitigated.

He further pointed out that the capital-adequacy ratio of Manappuram Finance is already at 18.37 per cent (as on December 31, 2011) as against the 12 per cent to be attained by April 2014 stipulated by RBI.

sajeevkumar@thehindu.co.in

(This article was published on March 22, 2012)
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