Muthoot Finance Ltd. (MUTH), India’s biggest lender using gold jewelry as collateral, fell the most in more than a year in Mumbai after a report that the central bank may boost scrutiny of industry loans as gold prices sink.
Muthoot led gold-based lenders lower in the city, falling as much as 19 percent, the most since March 22, to 121 rupees and trading at 128.15 rupees as of 10:55 a.m. Manappuram Finance Ltd. (MGFL) dropped 9.6 percent to 17.45 rupees, the lowest since August 2009.
The Reserve Bank of India will collect data from gold loan companies and provide direction to those whose loans exceed the value of gold holdings, The Times of India reported, citing unidentified sources. Gold priced in rupees dropped 6.2 percent last week, the sharpest weekly decline since December 2008, leading to possible repayment delays, said Himanshu Kuriyal, a banking analyst at Marwadi Share & Finance Ltd.
“Borrowers are delaying repayment of gold loans as the price of the collateral falls below the amount that has to be repaid,” Kuriyal said by phone. “With stringent norms in place for auctioning the collateral, time required to recover bad loans also increases.”
The RBI in March 2012 capped the firms’ loan-to-value ratio at 60 percent, which will stem any immediate crisis, the Times said. While the limit will ensure falling gold prices don’t trigger a selloff of the metal, bankers are unsure what stand the RBI may take on the loan-to-value ratio given gold price declines, it reported.
V.P. Nandakumar, chairman of Manappuram, said his firm has not been contacted by the RBI and that the company is fully compliant with the central bank’s rules. George Alexander Muthoot, managing director at Muthoot Finance, didn’t immediately return calls seeking comment.
Gold futures on the Multi Commodity Exchange of India Ltd. (MCX) have fallen 9.5 percent so far this year, data compiled by Bloomberg show.
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