Shares of Indian gold lenders up on central bank rule change

11-Jan-2014 Intellasia | AFP | 6:00 AM Print This Post

Shares of India’s gold-based finance companies soared on Thursday after the central bank eased rules on amounts they could loan in return for gold deposits.

The Reserve Bank of India (RBI) on Wednesday allowed non-banking finance companies to lend up to 75 percent of the value of gold jewellery deposited with them, increased from 60 percent.

“It has been decided to raise the loan-to-value ratio to up to 75 percent for loans against the collateral of gold jewellery from the present limit of 60 percent with immediate effect,” the RBI statement said on its website.

India, which rivals China as the world’s biggest gold consumer, has been attempting to reduce gold demand to narrow its current account deficit, including by hiking bullion import duties.

Shares of Manappuram Finance jumped 19.80 percent to a day’s high of 18.15 rupees and rival Muthoot Finance rose as much as 19.98 percent to 129.10 at the Bombay Stock Exchange.

The RBI said its easing of the rules was done “in view of the moderation in the growth of gold loan portfolios of these firms in the recent past”.

Gold is hugely popular in India, especially during religious festivals and wedding seasons, and is the second-biggest contributor after oil to India’s massive current account deficit – the broadest measure of trade.

Indians also buy gold in the form of jewellery, bars and coins as a hedge against inflation.

But the deficit narrowed to its lowest level since 2010 in the July through to September quarter as gold imports cooled, RBI figures released in December showed.

The deficit slid to $5.2 billion, or 1.2 percent of gross domestic product, in the quarter compared to $21.0 billion, or five percent of GDP, in the same period last year.


Category: Regional

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