Gold loan NBFCs said that the impact from the RBI directive to NBFCs to cap cash loan disbursements at ₹20,000 is going to minimal asthe bulk of their business is already digital.

“Our highly popular product ‘Online Gold Loan,’ which forms 50 per cent of our gold loan book, follows a fully paperless process of application and disbursement. Even for the loans originating at branches, most of our customers prefer direct transfers,” said V.P. Nandakumar, MD and CEO, Manappuram Finance adding that the directive will not hamper business.

Employees too are trained to convince customers to opt for online disbursements as it promotes “smooth operations”, he said, adding that RBI’s advisory will “promote transparency and prevent potential disputes”.

Recent reports suggest RBI has asked NBFCs to cap cash disbursements at ₹20,000 per transaction. The move comes after the central bank, in March 2024, put restrictions on IIFL Finance’s gold lending business.

The ₹20,000 cap on cash disbursements will require operational changes mainly in the gold loan business, which could have a transitory but manageable financial impact, Morgan Stanley Research said in a note, adding that Muthoot Finance is expected to be the most impacted followed by Manappuram Finance.

“NBFCs were disbursing up to ₹2 lakh in cash, wherever preferred by the customer, though they would nudge such customers toward opting for bank account credit via some discount in the lending rate,” it added.

Gold loans comprise 84 per cent of Muthoot Finance’s overall portfolio, of which 40 per cent are estimated to be transacted online. For Manappuram Finance, gold loans comprise 51 per cent of loans of which 56 per cent are online gold loans. Shares of the two lenders fell 8 - 9 per cent intraday before recouping losses. Manappuram Finance stock ended 7.3 per cent lower today at ₹1,66.80, and of Muthoot Finance 3.8 per cent lower at ₹1,597 on the NSE.

India Ratings

George Alexander Muthoot, MD, Muthoot Finance told a news channel that he does not see an impact or challenge due as most customers already opt for real time transfers to bank accounts and volumes are expected to sustain. Customers that prefer cash will need to be informed that any loan above ₹20,000 will need to be taken through the bank, he said, adding that 80 per cent interest payments are also through online channels.

However, India Ratings said that reduced cash disbursements could lead to a growth slowdown for gold loan NBFCs as borrowers may prefer approaching moneylenders or Nidhi companies for a quick disbursal and ease of operations.

Further, the regulatory action on IIFL Finance could escalate operational cost for all gold financing entities due to increasing regulatory compliance costs, heightened competitive intensity in the segment and rising threshold for branch profitability, the rating agency said, calling for a standardised disbursal process across gold lenders given the variability in internal policies.

Break-even AUM for new branches required for large-gold NBFCs to increase by 12 per cent and that for mid-to-small gold NBFCs to increase 10 per cent, largely due to the rising compliance cost, India Ratings said adding that mid-to-small gold loan NBFCs would prefer co-lending for profitable growth.