India's new gold loan rules to reshape lenders' business models, says S&P
The Reserve Bank of India's final guidelines on gold-backed lending, issued earlier this month, mandate a shift to cash flow-based credit assessments and tighter monitoring of loan-to-value (LTV) ratios.
S&P said these changes will have the greatest impact on non-bank lenders heavily reliant on gold loan portfolios.
'The first is that finance companies face upfront costs as they transition to a cash flow-based assessment of the borrower's creditworthiness," said Shinoy Varghese, credit analyst at S&P Global Ratings.
Lenders have until April 1, 2026, to comply with the new norms. While the rules allow greater flexibility in offering short-tenor loans for consumption borrowing, the inclusion of interest rates in LTV calculations may shrink actual disbursals to borrowers, the ratings agency said.
S&P said that gold-loan specialists like Muthoot Finance (MUTT.NS), opens new tab and Manappuram Finance (MNFL.NS), opens new tab will likely face the steepest adjustments.
It also warned that as lenders broaden their risk appetite and explore new loan structures, the sector may become more vulnerable to sharp corrections in gold prices.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
an hour ago
- Reuters
World's biggest climate fund ramps up investment plans
LONDON, July 4 (Reuters) - The world's biggest multilateral climate fund said it will make its largest ever series of investments and speed up dealmaking as it looks to help poorer nations respond to global warming. The Green Climate Fund's plan to release about $1.2 billion for 17 projects mostly in Asia and Africa follows approval by shareholders including the United States at a meeting this week, against a fractious political backdrop that has seen development aid slashed. Official development assistance could fall 17% this year after a 9% drop in 2024, the OECD said in a June report, opens new tab, led by hefty cuts to U.S. aid by President Donald Trump. "At a time when collective climate action is more needed than ever, GCF is stepping up to deliver on its mandate," GCF Co-Chair Seyni Nafo said in a statement. The GCF disbursement includes $227 million for an initiative to expand green bond markets in 10 countries. Green bond markets are where companies raise capital for projects that limit climate change or otherwise benefit the environment. In South Asia, it will invest $200 million in the India Green Finance Facility to scale renewables and energy efficiency, while in East Africa it will invest $150 million in the food system to support nearly 18 million people. All the projects will bring the GCF investment portfolio to $18 billion across 133 countries. So far, countries have pledged $29.9 billion to the GCF and paid in $21 billion. As well as releasing more money, the GCF board also approved plans to speed up its work with partner organisations, which can include accredited entities like other multilateral lenders and so-called Direct Access Entities in developing countries. From an average 30 months to accredit a DAE, the aim is to shorten the time to nine months or less by overhauling its procedures, including carrying out much of the due diligence at the project stage.
Reuters
an hour ago
- Reuters
India regulator bars Jane Street from accessing its securities market
July 4 (Reuters) - India's market regulator said it had barred global fund Jane Street from accessing the nation's securities market, after an investigation into alleged market manipulation. The Securities and Exchange Board of India (SEBI) posted an order on its website dated July 3 outlining that Jane Street would no longer be able to participate in the domestic securities market. Jane Street did not immediately respond to a request for comment from Reuters. SEBI said it would 'impound' 48.4 billion rupees ($566.71 million) which it said was the 'unlawful gains earned' from the alleged misconduct. "Entities are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly," the SEBI notice said, referring to Jane Street entities. SEBI said Jane Street's activity on existing positions would be monitored until the regulator's investigation is finalised. ($1 = 85.4050 Indian rupees)
The Independent
2 hours ago
- The Independent
China shows signs of tackling the price wars that are taking a toll on its EV industry
The Chinese government is signaling enough is enough when it comes to the fierce competition in the country's electric car market. China 's industrial policy has engineered a remarkable transformation to electric vehicles in what is the world's largest auto market. In so doing, it has spawned far more makers than can possibly survive. Now, long-simmering concerns about oversupply and debilitating price wars are coming to the fore, even as the headline sales numbers soar to new heights. Market-leader BYD announced this week that its sales grew 31% in the first six months of the year to 2.1 million cars. Nearly half of those were pure electric vehicles and the rest were plug-in hybrids, it said in a Hong Kong Stock Exchange filing. The company phased out internal combustion engine cars in 2022. BYD came under thinly veiled criticism in late May when it launched a new round of price cuts, and several competitors followed suit. The chairman of Great Wall Motors warned the industry could come under threat if it continues on the same trajectory. 'When volumes get bigger, it's just much harder to manage and you become the bullseye,' said Lei Xing, an independent analyst who follows the industry. The government is trying to rein in what is called 'involution' — a term initially applied to the rat race for young people in China and now to companies and industries engaged in meaningless competition that leads nowhere. BYD has come under criticism for using its dominant position in ways that some consider unfair, sparking price wars that have caused losses across the industry, said Murthy Grandhi, an India-based financial risk analyst at GlobalData. With the price war in its fourth year, Chinese automakers are looking abroad for profits. BYD's overseas sales more than doubled to 464,000 units in the first half of this year. Worried governments in the U.S. and EU have imposed tariffs on made-in-China electric vehicles, saying that subsidies have given them an unfair advantage. Market leader BYD comes under attack The latest bout of handwringing started when BYD cut the price of more than 20 models on May 23. The same day, the chairman of Great Wall Motors, Wei Jianjun, said he was pessimistic about what he called the "healthy development' of the EV market. He drew a comparison to Evergrande, the Chinese real estate giant whose collapse sent the entire industry into a downturn from which it has yet to recover. "The Evergrande in the automobile industry already exists, but it is just yet to explode,' he said in a video message posted on social media. Two days later, a BYD executive rejected any comparison to Evergrande and posted data-filled charts to buttress his case. 'To be honest, I am confused and angry and it's ridiculous!' Li Yunfei, BYD's general manager of brand and public relations, wrote on social media. 'All these come from the shocking remarks made by Chairman Wei of Great Wall Motors.' Next, the government and an industry association weighed in. The China Association of Automobile Manufacturers called for fair competition and healthy development of the industry, noting that major price cuts by one automaker had triggered a new price war panic. On the same day, the Ministry of Industry and Information Technology vowed to tackle involution-style competition in the auto industry, saying that recent disorderly price wars posed a treat to the healthy and sustainable development of the sector. 'That price cut might have been the final straw that irked both competitors and regulators for the ruthlessness that BYD continues to show,' Lei said. A promise to pay suppliers within 60 days signals possible shift The following month, 17 automakers including BYD made a pledge: They would pay their suppliers within 60 days. One way China's automakers have been surviving the bruising price wars is by delaying the payments for months. The agreement, if adhered to, would reduce financial pressure on suppliers and could rein in some of the fierce competition. 'The introduction of the 60-day payment pledge is the call of the government to oppose involution-style competition," said Cui Dongshu, the secretary-general of the China Passenger Car Association. It also reduces the risk of an Evergrande-like scenario. Many automakers had stretched out payments by paying suppliers with short-term debt — promises to repay them in a certain period of time — instead of cash. Real estate developers used the same system. It worked until it didn't. When Evergrande defaulted on its debts, suppliers were left holding worthless promises to pay. 'This practice is seen as a potential cause of a larger crisis, similar to what happened with Evergrande,' Grandhi said. The vows to speed up payments and the government calls to rein in the price wars, along with a rollback of some financing offers, point to an effort to reverse downward price expectations, said Jing Yang, a director at Fitch Ratings who focuses on the auto industry. 'We may watch how effectively these measures are in reversing the price trend and how would that affect EV demand in the coming quarters,' she said.
