Page 109 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes 4. Money for buying computer for pursuing computer programming.
5. Travel and lodging expenses will also be covered by the loan.
6. Caution deposit, refundable deposit or building fund.
7. Any other cost essential for studying the program.

Self Assessment

Fill in the blanks:

8. The RBI has also ………………………… the interest rates on home loans in order to match
the repayment capability of even middle class people.
9. ……………………… loans are used for debt consolidation, or to pay for vacations, education
expenses, or medical bills, and are amortized over a fixed term with regular payments of
principal and interest.

Caselet Gold Loans: RBI Favours Banks over NBFCs

A paper on gold loans by a Reserve Bank of India (RBI) working group favours
banks over Non-banking Financial Companies (NBFC).

Currently, NBFCs devise lending formulae after taking into account the overall value of
gold jewellery, which includes making charges, manufacturing loss, tax, etc. According to
the paper, current RBI guidelines allow NBFCs to tweak the calculating method according
to their convenience, without the overall lending exceeding 60 per cent of the loan-to-
value (LTV). Though the formula recommended by RBI raises the LTV, overall lending
declines slightly below that using the current formula (with 60 per cent of LTV), as this
doesn’t allow NBFCs to include making charges, tax, etc. in the overall value of gold.
In the revised recommendations, RBI mandates NBFCs to consider only the value of the
metal. Hence, the overall lending comes down marginally.

“The recommendation by the committee for an LTV increase is incrementally neutral for
the sector, though it provides much-needed clarity to gold loan NBFCs,” said Pankaj
Agarwal, an analyst with Ambit Capital.
“Moderation in the operations of gold loan NBFCs may provide increased opportunity to
banks to further enhance their share in the gold loan market. For this, banks would have
to reorient their business models and customer services to fully tap the business
opportunities in the gold loan market, as they may still lack the speed to deliver to
borrowers whose needs are catered to by gold loans NBFCs so far,” the paper said.
Data compiled by RBI (from NBFCs and banks) showed of the total gold loans outstanding
at the end of March 2012, 72 per cent were provided by banks, while the rest were given by
gold loan NBFCs. However, the share of NBFCs doubled from 13 per cent at the end of
April 2008. Thus, annually, the share of the NBFCs increased by about three percentage
points.
In recent years, there has been a growing demand for gold loans. On an annual basis
(considering a three-year moving average), gold loans in India grew 60-70 per cent in the
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