The RBI has directed the lender against gold as security to refrain from advancing more than 60% of the value of Jewellery and also not to advance monies against pure gold . This is a very welcome step and would be interest of the lending companies themselves and also of the public. When the pure gold is kept as security it is more less speculating by the borrower and gives a chance to lenders to make some extra money from people so inclined.
There may be lesser growth in advances by the companies concerned and also there may be some moderation in the rate of interest but why should it not be so. The needy person ,when stuck with jewellery , requires money he should have a loan facility otherwise his loss in compulsive selling will huge. For the lender it will be still safe if the advance is only to the extent of 60%. This will ensure safe future of NBFCs in this field.
They are also required to maintain a capital adequacy ratio of 12% against the advances and this is OK too and it is already there in case of the leaders like Manappuram and Muthoot . It is surprising that share prices of these have suffered more than necessary.