The Reserve Bank of India (RBI) has issued a warning to non-banking finance companies (NBFCs) that offer gold loans, cautioning them against exceeding the limit of Rs 20,000 for cash loan disbursal. The central bank referred to Section 269 SS of the Income Tax Act, 1961, which states that individuals cannot receive more than Rs 20,000 in cash as a loan. The RBI advised gold loan NBFCs to strictly adhere to the provisions of the Income Tax Act to avoid any violations. This advisory has been reviewed by Business Standard.
In March, the RBI had prohibited IIFL Finance, a non-banking financial company, from approving and disbursing new gold loans due to “material supervisory concerns” and to safeguard customer interests. One of the concerns raised was related to higher cash disbursements than the prescribed norms. However, the management of IIFL Finance stated that the majority of the concerns were operational in nature and not the result of any unethical practices by the company.
IIFL Finance had approximately Rs 24,700 crore in gold loan assets under management, which accounted for around 31% of its total assets under management. The company operates over 2,721 dedicated gold loan branches across 25 states and union territories, with a workforce of approximately 15,000 employees. Although the growth of NBFCs in gold loans has been slower compared to banks, they still remain the leading providers of such loans. According to RBI data, gold loans constituted 59.7% of the total loans granted by NBFCs in the financial year 2022-23, slightly lower than the 61.7% in the previous year.
NBFCs offering gold loans are required to maintain a Loan-to-Value (LTV) ratio not exceeding 75% for loans granted against gold jewellery as collateral. The RBI was contacted for comment on the issue, but no response was received at the time of publication.
