The Reserve Bank of India (RBI) has made a significant decision regarding loans secured against gold. It has directed non-banking financial institutions (NBFCs) like Muthoot Finance and Manappuram Gold Loan to adhere to specific guidelines when disbursing cash loans exceeding Rs. 20,000.

Essentially, NBFCs are instructed not to provide cash for loans exceeding this amount. Instead, if the loan exceeds Rs. 20,000, the funds should be transferred directly to the borrower’s bank account.

This directive ensures that transactions involving larger loan amounts are routed through bank accounts, which subsequently leads to the reporting of these transactions to the Income Tax Department. The RBI has cited Section 269 SS Rules of the Income Tax Act as the basis for these instructions.

Under the Tax Act of 1961, an advisory has been issued regarding gold loans, stipulating that individuals cannot receive loan amounts exceeding Rs. 20,000 in cash. Non-banking institutions such as Muthoot and Manappuram are obligated to adhere to these regulations when providing gold loans. It is crucial for borrowers to be aware of these rules. The RBI has emphasized that strict action will be taken against any violations of these norms.

In March of this year, the Reserve Bank of India (RBI) delivered a significant blow to Indian Infoline Finance Limited (IIFL), a prominent gold loan company, by imposing a ban on the issuance of new gold loans.

The RBI cited concerns over material supervisory issues and safeguarding customers’ interests as the reasons behind this decision. It was revealed that the company had violated regulations and conducted a substantial volume of cash transactions.

Additionally, the RBI cautioned against the sale of gold loans. These restrictions imposed by the RBI are expected to adversely affect IIFL.

Muthoot Finance Downplays Impact of RBI Gold Loan Guidelines

 

George Alexander Muthoot, Managing Director of Muthoot Finance, has stated that the recent directive from the Reserve Bank of India (RBI) regarding gold loans will not have any significant impact on their business. Despite the RBI’s instruction to refrain from providing gold loans in cash exceeding Rs. 20,000, Muthoot Finance remains confident in their operations.

Muthoot clarified that the RBI’s rules apply uniformly to all non-banking financial institutions (NBFCs). However, they emphasized that the majority of their loans are already disbursed through real-time bank transfers, minimizing reliance on cash transactions.

Additionally, Muthoot Finance highlighted that their customers typically possess bank accounts, further facilitating loan transactions within the prescribed limits. They also encourage customers seeking loans above Rs. 20,000 to have a bank account for seamless transactions.

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