The Association of Gold Loan Companies has asked its members to reduce the maximum lending rate in the light of falling gold prices.
The Association is closely monitoring the gold price movements and will advise its members of any further change in the maximum rate of loan per gram of gold, George Alexander Muthoot, President, AGLOC, said.
After taking feedback from its members on current development of falling gold prices and its impact on their loan portfolios, AGLOC has asked member-companies to review its existing collection mechanism and further strengthen it.
There should be regular monitoring of overdue and high loan-to-value accounts. Companies should auction defaulted and abandoned loan accounts with due compliance to the fair practice code stipulated by the RBI, he said.
Members confirm that loan demand continues to be robust in spite of reduction in amount lent per gram of gold. It is also noticed that there is regular redemption of earlier loans sanctioned at higher amount per gram of gold, he added.
AGLOC, a self-regulatory organisation, was formed in April 2011 to promote and safeguard the interests of gold loan companies registered with the RBI.
The Association believes that a 15-20 per cent price fluctuation in gold prices will not have any significant impact on the gold loan portfolios of member-companies as they have already factored in such fluctuations in the business model.
Though gold price is an important factor, the business model should not be misunderstood as a business of financing of gold bullion or shares wherein mark-to-market valuation could affect the repayment behaviour of the borrower.
Gold loan companies lend mainly against household jewellery where the impact of such temporary fluctuations on the business model are minimum. These loans are of short duration of 3-6 months. Compared to the disbursements, the NPA (non-performing asset) levels are low, he said.