RBI asks NBFCs to go cashless for gold loans above Rs 20k

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CHENNAI: The Reserve Bank of India (RBI) on Thursday said non-banking finance companies (NBFCs) cannot issue more than Rs 20,000 in cash against gold loans, sending shares of Manappuram Finance and Muthoot Finance down 4% on the bourses. The central bank’s move is being seeing as part of its “go digital“ drive post-demonetisation. “The requirements under the Income Tax Act, 1961, as amended from time to time, would be applicable to all NBFCs with immediate effect.Currently, the relevant threshold under the Income Tax Act, 1961 is Rs 20,000,“ the central bank said in a statement.

Muthoot Fincorp said that the existing ceiling was Rs 1 lakh for cash disbursement and bringing it down to Rs 20,000 will have an impact. “A very large number of our borrowers pledge their gold jewellery for loans between Rs 25,000-30,000. Now these people will have to forcibly go digital,“ said S Kannan, executive VP, Muthoot Fincorp.

The financier also said that the purpose of a gold loan might be defeated. “Gold loans are easy , ready finance. Usually taken at the time of an emergency like a medical procedure. So there is bound to be disruption in our markets in central India, particularly in states like Bihar,“ said Kannan.

Southern states such as Kerala and Tamil Nadu, where the NBFC has a large customer base, might not face as many problems. “We normally issue a cheque or transfer the amount, if the disbursement is more than Rs 1 lakh. Now, we will have to do that for lowervalue transactions. Of course, there is the question as to what if the customer immediately wants cash. Then we might be forced to disburse the loan in part in cash -and then by bank transfer -assuming of course that they have bank accounts,“ he said