Rating agency India Ratings today said falling gold prices, if sustained, could significantly impair the asset quality of the gold loan portfolios of non-banking finance companies (NBFCs) and banks. It said the impact of the sharp fall in recent weeks could be absorbed by high profitability but more softening of domestic prices would make a larger part of the portfolio vulnerable. Companies with significant exposure to gold loans could, thus, be impacted severely.
Muthoot Finance and Manappuram Finance are two large NBFCs which give loans against gold. Some South India-based lenders such as Indian Overseas Bank and Indian Bank also have a significant gold loan portfolio. In such debt, the loan to value (LTV) ratios are high, due to intense competition to gain market share, said India Ratings.