NBFCs gave out most loans against gold in Q1

Mumbai: Gold loans have cornered the largest share in loan sanctions by non-bank lenders in the first quarter of the fiscal amid a slowdown in personal loans, according to the latest data collated by industry body Finance Industry Development Council (FIDC).

Total gold loans sanctioned by non-banking financial companies (NBFCs) increased 26% year-on-year to ₹79,218 crore in the first quarter of the current fiscal even as sanctions for personal loans fell by 4%, indicating the impact of higher risk weights for unsecured loans by the Reserve Bank of India.

This is a change from a year ago when personal loans by NBFCs topped the loan sanctions at ₹63,495 crore a year ago.

The FIDC data, which is collated based on actual sanction of loans from NBFCs, came just a couple of days after the RBI warned that it would take regulatory action on entities for violating norms if corrective measures are not taken within three months.

The central bank pointed out that its on-site inspections had found several irregular practices in the industry while lending against gold. These include shortcomings in the use of third parties for sourcing and appraisal of loans, valuation of gold without the customer being present, lack of end-use monitoring and also lack of transparency while auctioning gold when a customer defaults.

FIDC data show that sanctions of gold loans were high by a wide margin of ₹79,218 crore versus ₹71,306 crore for personal loans. Housing loans make up the third largest proportion of disbursals.But property loans which are up 21% YoY, are now the fourth-largest category of sanctioned loans ahead of unsecured business loans, the pace of which has slowed down.NBFCs have slowed down lending to unsecured loans after RBI increased risk weights on consumer loans from banks and NBFCs last November, making it more expensive for lenders across the spectrum to offer loans in these segments.

Risk weights refer to the amount of capital lenders have to set aside to cover credit risk from a particular loan segment. A higher risk weighting requires banks to set aside more capital for those loans.

Last November, RBI increased the risk weight on consumer credit for banks and NBFCs to 125% from 100%.