Now the finance companies who lend against gold have fallen in the eyes of Reserve Bank of India. Reserve Bank of India has mentioned that lenders need to value the pledged gold at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association Ltd, to arrive at the loan-to-value ratio, while the ratio would remain at 60 per cent for loans against jewelry. Currently, there is no standard method for arriving at the value of gold accepted as collateral and valuation are arbitrary and opaque.
The Reserve Bank of India has also streamlined the process by which lenders auction gold when a borrower defaults, saying lenders need to declare a reserve price for the pledged ornaments. Lenders would also need RBI approval to open branches exceeding 1,000 and no new ones would be allowed without adequate storage facility for gold.
Some of the existing listed entities like Muthoot Finance and Manappuram Finance having 3,801 and 3,293 branches respectively may be affected by the RBI`s notification.
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