The Reserve Bank of India is the regulatory authority that manages and controls the financial functioning in the country. The authority works continuously and in accordance with the situations in the market. Thereby, keeping in mind the current situations, RBI proposed a new measure to boost the growth of gold loan companies in the market.

Currently, RBI proposed to increase the loan to value ratio to 75 per cent from the current LTV of 60 per cent. The increase in the LTV ratio will fund the gold loan growth in the market. Earlier, in the year 2012, RBI fixed the LTV ratio to 60 per cent. However, in view of the moderation in the gold loan rates, the LTV has been further revised from 60 to 75 per cent. 

This will help the gold loan companies experience a boost in their business volume, without compromising on the affordability factor. The proposal was brought down by the K U B Rao committee, that had been appointed by the Reserve Bank of India for monitoring the gold loan companies. The proposal brought forward aims to increase the monetization value of the gold. 

Leading gold loan company, Muthoot Finance Gold Loan, believes that the will create a financially inclusive environment and will fuel the funding amongst the micro-economies in the country. Thereby, underprivileged areas in the society that is the un-banked rural and semi-urban customers will be able to borrow more funds against their precious yellow metal. Thereby the unorganized sector may be able to experience more funding and will be able to seek easy financing even while belonging to the unorganized sector. 

Though the LTV ratio of the gold has been increased from 60 to 75 per cent yet, it must be kept in mind that the value of gold taken into consideration for the gold loan will only be the intrinsic value of the gold, and any other costs won’t be included into it. Thereby, through this intrinsic value of the gold included in the LTV and, not the additional costs, the gold loan lenders will be able to lend gold conveniently, by restricting the quantum of gold that lenders can give. Having an estimate about gold rate also helps.

Further, the measures presented in the report emphasized the role and importance of the banks and the NBFCs, that is the Non-Banking Financial Companies, in the monetization of the gold in the financial market. Many NBFCs were seeking this extension from a long time to cope up with the de-growth of the loan. However, it was also stated that the NBFCs might not be able to experience an increase in the market shares from the current trends. This is because, in comparison to NBFCs, Banks enjoy the advantage of higher competitiveness.

Also, it must be kept in mind that the gold loans are assumed to guarantee, high risk-adjusted returns and larger growth rates in the segment of a gold loan. In comparison to NBFCs, banks are able to set up comfortably with this increasing rate. This is because the Non-banking financial companies or the gold loans companies as it can be called, rely more on the wholesale funding sources. Banks, on the other hand, hold 72 per cent market shares and may expand the Rs 1.4 lakh crore gold loan market with an increase in the market share.