Which means the proposed norms of RBI for co-lending, gold loans | Mint

Mumbai: The Reserve Bank of India (RBI) has proposed changes to harmonize lending forms on regulated entities. Two important frameworks proposed on April 9 as part of the monetary policy statement concern co-lying and lending against gold ornaments and jewelry-qualified loan segments for both lenders and lenders. Mint Look at what these proposed norms can mean for the sector and how it will affect the lending in these segments: Whare is the proposed co-lending? The biggest takeaway is that co-lending has now been expanded to all regulated entities versus the current norm of only banks and non-banking financial services companies (NBFCs) that are allowed to work together. Co-lending refers to joint funding of a loan portfolio in a preceding relationship, which involves income and risk distribution, with or without acquisition and management arrangement. Read also | What RBI has for banks and NBFCs in the store next year means that two banks or two NBFCs can give an edge. Given the significantly greater number of NBFCs in the country, this capital light model is seen advantageously for small, middle size and digital NBFCs, which can now work with larger or traditional NBFCs than waiting for a bank partner. Lenders will also be allowed to give a standard loss guarantee of up to 5% of the outstanding loans under a co-lending or procurement arrangement. How will lenders benefit? When co-lending guidelines were introduced in 2020, it only applied to PSL (priority sector lending) loans. However, RBI has allowed banks in non-PSL segments from case to case. “According to recent studies, about 75% of the lending volumes handled by banks are in non-PSL loans. However, it is based on approval the RBI has granted to specific banks who have requested permission,” said Kishore Lodha, CFO of Uugro Capital. The proposed norms will significantly broaden “the extent of co-lending” and will result in banks scaling volumes far above current levels, he said. “Although the process of forming partnerships and carrying out co-lending agreements remains fairly long and requires considerable effort, it is expected to open up to lending. Like retail, MSMEs (micro, small and medium businesses) and consumption credit, as banks are usually more conservative in the case of small value loans, industry experts said. Borrower selection, specific product lines and operational areas include and publicly, fees payable for expansion, separation of responsibilities, and customer interface and protection issues and grievance correction mechanism. Read also | NBFCs are gaining fresh momentum, as RBI facilitates the lenders of the bank loan norms, the annual percentage rate – including the mixed interest rate and any additional fees – will also disclose to the lenders in the Key Feiters (KFS). All payouts and refunds must be sent by a bor account, and all complaints must be treated within 30 days. Lenders must ensure the compliance of KYC and implement a business continuity plan to ensure uninterrupted service to borrowers if the co-lending arrangement resolves. Will existing co-emergence forms be exposed? RBI has made it clear that the proposed co-lamenting forms will be an addition to certain existing norms to address the gaps in such arrangements that do not currently cover all categories of loans. The guidelines for digital lending and those for peer lending platforms will continue. The new guidelines will also apply to lending arrangements involving the acquisition of loans by one regulated entity (HER) of other rest or non-racing under an outsourcing agreement, without fund or non-fund obligations. However, loans of more than £ 100 crore, which are sanctioned, among multiple banking, consortium loans or syndication arrangements, will be exempt from these norms. Asset classification for these loans will be done at borrower level, which implies that an exposure to loans as “standard”, “SMA” (special-mentioned account) or aPPA “(non-performing asset) must be classified at any given time. What does new norms about loans suggest gold jewelry? The most important changes represented among the new norms relate to the classification of gold and silver loans based on their end use, specifically whether the loans are given as ‘revenue’ – credit for agriculture or for small businesses – or as ‘consumption loans’ for personal fund requirements. The same qualifying gold collateral cannot be used simultaneously for income-generating and consumption loans. Income -generating loans must be classified according to the purpose they are given, instead of as gold loans, on the balance sheets of the borrowers. The central bank also repaid the tenor of consumer gold loans with a bullet or lump sum at 12 months for banks. For such loans by cooperative and local rural banks, the loan amount is limited to £ 5 lakh per lender. The loan-to-value (LTV) ratio for all gold loans by NBFCs and for consumption loans by banks will be limited to 75%. For agri-based gold loans, banks are currently following an LTV as determined by their internal policy, which continues to continue with all income-generating gold loans. “If the end use is for income generation, borrowers (excluding NBFCs) may prescribe a LTV ratio as part of their policy; however, additional caution, including borrower cash flow assessment and primary security creation process, can be operationally heavy,” said AM Carthik, senior vice president and fellow group. What changes for gold financiers? Under the new norms, RBI explicitly prevented the borrowers from accepting gold in its primary form–like bullying or gold bars or even financial instruments such as gold ETFs and mutual funds or against the re-planned gold collateral where the ownership of the collateral is questionable. Lenders must hold their golden loan portfolios as a percentage of their total loans and progress, which must be reviewed periodically. As such, the quantum and tenor gold loans must be assessed on the basis of credit requirement and cash flow that is likely to be generated by the economic activity, and not the value of the collateral. In addition, they will only be allowed to sanction loan renewals and the supplement of loans if the existing loans are classified as ‘standard’. Top-ups or renewals for bullets repayment may only be extended after the repayment of interest has raised. All such additional loans can only be expanded on the basis of a formal lender search and based on a new credit assessment. Read also | NBFCs prop for slower growth than asset tension, Fund costs “RIBI’s decision to harmonize gold loan rules and regulations will be beneficial to all stakeholders, especially NBFCs for gold loans, as there is currently no equal playing field,” says VP Nandakumar, Managing Director of Manappuram Finance. NBFCs have always been a disadvantage as banks have access to cheaper funds, eligible to offer gold loans, enjoy higher LTV relationships and take advantage of favorable renewal policies, he said. How will lenders benefit from new guidelines for gold loans? As in the case of the proposed fellow lending, gold loan lenders will benefit from tighter norms for borrowers regarding the handling and testing of the gold collateral; a mandate for better infrastructure; facilities and safes for safes for the storage of the collateral; strict guidelines with the return of the collateral to refund or settlement of the loan and the auction process; and mechanisms for correcting grievances. Borrowers will be able to pledge gold or silver ornaments of up to 1 kilogram. In this, the total weight will be covered at 50 grams per lender in the case of gold coins and 500 grams per lender in the case of silver coins, subject to being specially minted coins, with a purity of 22 carat or higher, sold by banks. In the case of delays in exchange for the collateral, borrowers will be the compensation of £ 5,000 for each day of delay outside the seven -day timeline. If auctioned, lenders will also have to declare a reserve price for the gold collateral at the time of the auction, subject to being at least 90% of the current value of the collateral.