InvestorQ : What is the meaning of the enhanced Gold LTV ratio? Is it good for a borrower and can I buy gold finance stocks like Manappuram and Muthoot?
Debbie Mascarenhas made post

What is the meaning of the enhanced Gold LTV ratio? Is it good for a borrower and can I buy gold finance stocks like Manappuram and Muthoot?

Answer
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Crowny Pinto answered.
2 months ago


In the latest monetary policy, the RBI has announced the Loan to Value ratio or the LTV ratio from 75% to 90%. LTV is the extent to which the financier will give you funding against the market value of gold pledged by you. Normally, the bank gets an assessor to value the gold and then gives a loan facility up to 75% of the assessed value. Now they can go up to 90%.

In short that means you can get more loan against your gold pledged. Will this be to your advantage? There are a number of factors. Firstly, 90% funding means just 10% margin. Most likely, gold loans will charge you a higher interest rate for that higher risk. You need to take a call accordingly. Also, if the price of gold falls, then you may be called upon to put more margins or repay the loan partially, failing which gold will be auctioned.

This will broaden the playfield for gold finance companies like Muthoot & Manappuram. But, certainly there are apprehensions that this would amount to enhancing the implicit risk for lenders. Most of the gold companies have been super performers because they used to earn a comfortable spread between yield and cost of funds. Also, the gold value was good enough. All that could change if gold price falls, so be extremely cautious.