Indian Banks to Review Collateral on Gold Loans, Ministry Says

Indian banks will review loans backed by gold and call for more collateral as the price of the metal falls, said Rajiv Takru, secretary for financial services at the Finance Ministry.

The central bank “moved immediately” to call on banks to review lending when gold prices began falling, Takru said in an interview in New Delhi yesterday.

Gold futures in New York slumped 17 percent this year through yesterday, the worst start since 1981. Physical savings including gold account for about 66 percent of Indian household assets, the highest proportion among major economies, according to Vishal Narnolia, a Mumbai-based analyst at SMC Global Securities Ltd.

“Banks will be looking at all accounts to see if more security is required and will probably call for it,” Takru said. “There is no systemic risk to India’s financial system on account of falling gold prices.”

The selloff was sparked by investor concern that European governments may have to follow Cyprus in selling part of their holdings, according to Goldman Sachs Group Inc. BlackRock Inc. called the price move a “panic event.”

Muthoot Finance Ltd., India’s biggest lender using gold jewelry as collateral, rose 6.5 percent to 125.9 rupees at 10:26 a.m., paring its loss this year to 40 percent. Manappuram Finance Ltd., a Thrissur, Kerala-based gold loan company dropped as much as 4.8 percent before gaining 1.6 percent to 15.95 rupees.

Before it's here, it's on the Bloomberg Terminal.