India banks to limit exposure to Gold finance companies
Banks wanted a better assessment and were seeking information from gold companies for an impact analysis of the correction in prices and the loss absorption, they added.
Ever since India announced policies to discourage gold's usage in the country, banks in the country are becoming cautious on exposure to gold finance companies.
Analysts said most banks have sought data from these companies on loss absorption capacity in case of a fall in gold prices and higher defaults, the two major reasons for gold loans turning non-productive.
Banks wanted a better assessment and were seeking information from gold companies for an impact analysis of the correction in prices and the loss absorption, they added.
However, banks do not also see a refinancing challenge, as they do not expect a liquidity issue with these companies.
They said the drop in gold prices and increase in delinquencies would not impact the liquidity however, some gold loan companies might take a hit on their profits.
India’s first listed private gold loan company, Manappuram said it expected an under-recovery of revenue on certain gold loan portfolios and thus might result in a reduction in profit numbers for the fourth quarter, ending this week.
Indian credit ratings agency,ICRA had recently highlighted the asset quality concerns after the Reserve Bank of India had tightened the loan to value norms.
It said the new norms could adversely impact asset quality of gold loan firms in the short term since borrowers wanting loan refinance would be eligible for a lower amount than was the case earlier.
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