Gold loan companies should be allowed to access public deposits if these entities’ lending rates are to be lowered, George Alexander Muthoot, Managing Director, Muthoot Finance, has suggested.
Any such regulatory approval from the Reserve Bank of India will reduce the cost of borrowing for gold loan companies, thereby enabling them to lower their lending cost to borrowers, Muthoot said at an industry event here on Thursday.
The current RBI policy provides that acceptance of public deposits be restricted to banks.
Gold loan companies are not allowed to access public deposits and, therefore, rely largely on banks to meet their funding needs. Some of them have been raising funds through non-convertible debentures.
Just as lending by gold loan companies to borrowers is considered financial inclusion, even investments made by such borrowers in the products offered by NBFCs should be permitted and treated as part of financial inclusion, he suggested.
Muthoot said gold loan companies – which provide loans against used jewellery – were not financing an asset but meeting a need of the customers. None of the gold loan companies are involved in import of bullion, he added.
Currently, the average lending rate by gold loan companies ranges between 19-20 per cent, while their cost of funds from banks is pegged at around 13 per cent.
The spread made by gold loan companies is reasonable given the operational costs involved and the main funding avenue being only banks, Muthoot said speaking for the industry body, the Association of Gold Loan Companies.