Gold loan firms face hit from new priority sector lending norms, ET BFSI

March 28, 2025

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Gold mortgage corporations face hit from new precedence sector lending norms

The Reserve Bank of India’s (RBI) resolution to exclude gold loans originated by non-banking monetary firms (NBFCs) and later acquired by banks from priority sector lending (PSL) classification is predicted to affect the expansion of gold mortgage firms and improve their value of funds.

NBFCs, with their quicker processing, streamlined programs, and wider attain in rural and semi-urban areas, have historically had a bonus in gold mortgage origination. These areas, the place a majority of precedence sector debtors are concentrated, have been a key marketplace for NBFCs. In distinction, banks typically discover it difficult to straight serve these prospects as a consequence of stricter processes and slower turnaround instances.

It’s a widespread follow for NBFCs to promote gold loans that qualify as precedence sector belongings to banks, permitting banks to satisfy PSL targets whereas offering NBFCs with funding at concessional charges. With the revised pointers eradicating the PSL advantages, this value benefit is prone to disappear, leaving NBFCs dealing with greater borrowing prices. Companies with the next reliance on this funding mechanism may even see a notable improve of their value of funds, doubtlessly decreasing the provision of funds for some gamers.

Rural areas

Gold loans, significantly these prolonged to farmers and small enterprises, sometimes qualify underneath the agriculture and micro-enterprise classes of PSL. Banks have typically used portfolio acquisitions from gold mortgage NBFCs to broaden their attain in rural markets with out having to develop a big department community. With the brand new norms in place, banks will not have the inducement to buy these mortgage portfolios, limiting an necessary funding channel for gold mortgage firms.

The revised pointers could compel NBFCs to discover various funding sources, however the lack of low-cost funding by means of PSL-qualified gold loans might dent their profitability and curtail future development.