Gold price fall not much of a worry for NBFCs: Crisil

The correction in gold prices in recent months is unlikely to have a significant impact on the asset quality of NBFCs lending against gold, said Crisil Ratings on Monday.

“Apart from periodically collecting interest over the past few fiscals, they have ensured that disbursement loan-to-value (LTV) is maintained below 75 per cent,” it said in a statement.

On a 30-day rolling basis, gold price has corrected about 10 per cent over the past six months, while on an absolute basis it has fallen twice that rate.

For NBFCs, the average portfolio LTV as on December 31, 2020, was about 63-67 per cent, while average LTV on incremental disbursements in the October-December 2020 quarter was nearly 70 per cent, said Crisil.

Why gold is set to continue its rally

“The LTV discipline is also evident in interest receivables remaining at just two per cent to four per cent of the loan book over the past few years,” it further said.

For banks, however, incremental-disbursement LTV was higher at 78-82 per cent because they were more aggressive than NBFCs in lending against gold during last fiscal, said Crisil, adding that much of the growth in their book came during the third quarter of last fiscal, when gold prices were soaring.

“Given that gold prices have dropped 18-20 per cent from their August peaks on an absolute basis, without periodic interest collections, the books of banks may be susceptible to asset-quality issues to some extent. However, with the LTV dispensation period ending in March 2021, incremental lending would have more LTV cushion,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings.

Since June 2020, loans against gold surged. In the 11 months through February 2021, loans against gold grew about 70 per cent for banks to over ₹56,000 crore. The growth was aided by the LTV relaxation to 90 per cent (only for banks) announced in August last year.

COMMENT NOW