Here’s a breakdown of the key points and details regarding the RBI’s advisory to non-bank lenders regarding the cash payout cap on gold loans:
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RBI Advisory:
- The Reserve Bank of India (RBI) has issued an advisory to non-bank lenders (NBFCs) cautioning them against disbursing cash loans exceeding Rs 20,000 ($240) to borrowers.
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Regulatory Action:
- This advisory follows recent regulatory action taken against IIFL Finance, one of India’s major gold loan players, for violating cash disbursal and other norms.
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Rapid Growth in Gold Loans:
- Retail credit in India has witnessed significant growth, particularly in loans against gold, which have surged threefold over the past four years.
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Cash Disbursal Practice:
- Despite regulations, a substantial portion of gold loans have been disbursed in cash, with several sources indicating this trend.
- NBFCs have reportedly been circumventing the Rs 20,000 cash payout limit by asking borrowers to sign indemnities against potential income-tax actions.
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Income Tax Regulations:
- India’s income tax rules prohibit lenders from disbursing cash loans exceeding Rs 20,000 to customers.
- The RBI’s advisory aims to enforce compliance with this regulation to protect customer interests and prevent the buildup of systemic risks.
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Vigilance and Enforcement:
- The RBI is intensifying vigilance against non-compliant lenders to ensure adherence to regulations and safeguard the integrity of the financial system.
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Market Impact:
- The issuance of the advisory has led to a decline in shares of gold-loan financiers such as Muthoot Finance and Manappuram Finance, indicating market concerns over regulatory scrutiny and compliance.
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Potential Motivations:
- Analysts speculate that the RBI’s move aims to curb the creation of “black money” and close loopholes in existing income tax regulations that some NBFCs may have been exploiting.
